Pay down your mortgage faster

Posted on 29. Oct, 2010 by in News

By Anna Vozza, The Windsor Star

Buying a home and building equity over time is a great investment in your future.

While homebuyers can look forward to one day being “mortgage-free,” renters will continue to pay rent indefinitely and will likely see their rent payments increase significantly as time goes by.

Even though the average time to pay off a mortgage is about 25 years, you can speed up the process. When you are buying a home, ask your Realtor to advise you on ways you can pay down your mortgage as quickly as possible. This information will be helpful when you are arranging financing on your home and be sure to discuss these various options with your financial institution before choosing a mortgage.

AMORTIZATION SCHEDULE

One of the best ways to pay off your mortgage faster is to shorten the amortization period. By choosing a shorter amortization, you will not only pay for your home in less time, but you will make substantial savings in interest too.

For example, the most common mortgage amortization is 25 years. By shortening that period to 15 years, you will erode the amount of money you owe much more quickly and make fewer interest payments. Shortening the amortization period is not for everyone as it does mean larger payments, but for many people the benefit of long term savings is worth it.

Usually each mortgage payment is blended and applied to both the principal and interest so at the beginning, the interest portion of the payment is extremely high. However, with each payment, more and more of is applied to the principal. Ask your Realtor to give you examples of what your payments would be at the current interest rate amortized over 25 years as compared to 15 years.

PAYMENT OPTIONS

It used to be that most people made monthly mortgage payments, but weekly, biweekly and semi-monthly payments are more popular today. With these types of payment options you will reduce the amount of principal you owe faster because you make payments on a much more frequent basis and less interest is accrued. Many mortgages also offer homeowners the option of making an additional payment each year or increasing your payment each month. Making the equivalent of one extra payment a year can save you a considerable amount over time.

ANNIVERSARY DATE

Many mortgages allow you to make a lump sum payment on the anniversary date of your mortgage. Again this reduces the amount of money you pay interest on resulting in long term savings. It’s wise to find out what “pre-payment” privileges are available on the mortgage you choose.

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