Mortgages are wonderful financial tools; they allow you to buy a home without having to save hundreds of dollars in cash.
However, as with any loan, you will have to pay interest that can make your 25-30 year loan even longer.
The first few years of your mortgage contract may seem daunting. Most of the money you pay will go towards interest and not equity.
This will obviously change over the years but if you are interested in building equity more quickly, there are a few things you can do.
1. The accelerated payment option
Most homeowners make monthly mortgage payments, so 12 payments a year. This means that if a mortgage payment is $ 1,000, you will have paid back $ 12,000 in mortgages at the end of the year.
It is here that an accelerated payment option allows you to make half of a payment (for example here, $ 500) every two weeks. A full year will consist of (52 weeks per yr) 26 payments of $ 500, for a total of $ 13,000 at the end of the year.
That’s it, you will have accelerated your mortgage repayment of $ 1000 every year without really realizing it.
2. Make lump sum payments
A mortgage is a long-term commitment, usually 25-30 years. This means that any payment you can make in surplus will add up quickly.
This is great news because you can add a $ 100 surplus here and there over a period of 30 years or you can use your bonuses or tax returns to pay off your mortgage faster.
Let’s say you are able to put $ 500 more per year on your mortgage. This is a $ 15,000 refund surplus. By doing this, you will reduce your amortization period in number of years.
3. Live under your means
If paying off your mortgage is your priority, living within your means can be a great way to save money and pay down your mortgage faster. In addition, if during this period you are lucky, you could have one or a few increases over the course of your mortgage contract, consider re-evaluating your lifestyle.
4. Chat with your mortgage lender
Arrange a meeting with your mortgage lender and discuss your options. Maybe there is a payment option or restrictions that you do not know, but it will be in your favor to meet your lender.
5. Take stock and be serious
Since the repayment of your mortgage depends only on you and your financial decisions, find a motivation. It could come from everywhere, but generally, seeing the numbers on paper is the best way.
Here is an overview and how long it will take to pay off your mortgage by taking into consideration the following tips.
We will use as an example: A $ 300,000 mortgage with a 30-year amortization period.
1. First, go with the option of accelerated payments, which means bi-weekly payments.
2. Let’s say you are able to have $ 5,000 in surplus per year (tax returns etc.)
3. Another $ 1,000 from a salary increase
4. Increase your bi-weekly payments by $ 100
5. And finally any other surplus of money that you can put aside, say $ 1,000
In total, you end up with a surplus of $ 10,600 a year. Is not it a good motivation to be financially serious?
We understand that it is not so easy to end up with $ 10,600 more, but if your priority is to pay off your mortgage faster, you’ll get there.
6. Find the balance
If having the least debt is very important to you, then repay your mortgage as soon as possible, by all means. On the other hand, if you have a relatively low interest rate, your money may be better invested elsewhere.
You can also think of making renovations to your home and thus increase its value or invest any amount of surplus money you have.