Anyone with a mortgage – especially those folks who live in expensive cities like Toronto or Vancouver – would like to see their debt go away faster. But many people don’t know where to start.
The easiest way to save money on your mortgage is to switch from monthly to bi-weekly payments. Say you owed $500,000 on a 25-year loan with a 3% interest rate. Your monthly payment would be $2,366.23. But if you cut your payment in half and then switched to bi-weekly payments, the loan would go away nearly three years quicker.
Bi-weekly payments aren’t the only way to minimize your mortgage. Say someone gets a $3,000 income tax refund each year. If they plunked that windfall on their mortgage each year rather than spending it frivolously, it could cut years off their mortgage. Going back to our example, adding a $3,000 annual prepayment as well as switching to bi-weekly payments would eliminate that mortgage in just over 19 years.
It usually makes sense to pick a variable rate as well. A well-qualified borrower today can get a variable rate for under 2% annually, while a fixed rate loan is usually between 2.5% and 3%. Those interest savings can add up.
Or, if you don’t want to take the risk of rates potentially skyrocketing, take a shorter-term fixed loan for a year or two. This will be cheaper than the standard five-year fixed option.
In addition, make sure you use a mortgage broker or one of the many rate comparison websites out there to ensure you’re getting the best deal.
These simple changes can easily chop off five to seven years off your mortgage, getting you debt free all the sooner.
