Becoming Mortgage Free Sooner
With mortgage interest rates holding at historic low levels, many local families have become comfortable with the idea of a 25-year mortgage plan as the monthly payment can be managed with relative ease. However, for those that wish to be “Mortgage Free” sooner, I’d like to share five strategies to get you to that mortgage-free state earlier.
Increasing The Payment Frequency: this one is fairly common and most of my clients opt-in when setting up their custom mortgage program. Instead of a one monthly mortgage payment, you can look at changing it to bi-weekly payments instead. As there are more bi-weekly periods in any given year, this allows you to make a larger annual mortgage contribution which will save many months of interest over time.
Increase your bi-weekly payment amount: if your mortgage calls for a $1000 bi-weekly payment but you can afford $1100 or $1200, then I highly recommend you discuss that with your broker as it can have a major impact on the time it take to be mortgage free sooner. I have helped clients to increase they payments within their affordability to see them eliminate 5 to 10 years (or more) off their mortgage life span!
One Extra Payment: making an extra payment once a year can eliminate years from the total life span of the mortgage contract. Let’s use an example where the homeowner’s monthly mortgage payment is $2000 on for 25 years. If that homeowner was to contribute one extra payment per year for the first half of the mortgage life (12 years), that would be 12 x $2000 = $24,000 equivalent to one-year (approximate) of potential payments saved depending on term renewals and rates along the way. As well, many mortgage companies allow lump sum payments. For any reason, if you some extra cash comes your way in the way of a cash windfall or a work bonus, you can apply it to the mortgage to pay down the principal amount leading to saved interest charges.
Rental Suite Income: the idea of renting out a basement suite has become very common in Metro Vancouver area due to the increased home prices. In many cases, the rental income is used to afford the homeowner a friendly mortgage payment. Now let’s say the basement rent was $1000 and instead of using that $1000 to keep your mortgage payment low – you instead used $400 of it to make lump sum mortgage payments along the way?! This strategy would lead to a substantial advantage to help you become mortgage free earlier. Perhaps when you become mortgage free, you can reclaim and convert the basement for your own needs, like a man-cave or fitness zone!
Renegotiate Rates: I have worked with many local families, especially in recent months with the ultra-low mortgage rates to help them setup up a new payment plan. For example, a one-percent rate reduction on a $300k mortgage amount can save the homeowner up to $250 per month. Either that $250 can be used to reduce the monthly amount or the homeowner can choose to keep paying that $250 as an extra payment amount to get to the payment finish line sooner. I also recommend that you discuss the option to switch to a variable rate where possible. It may not be for everyone but for the ones it makes sense for, the lower variable interest rate would lead to more of the principal mortgage amount being paid down.
I hope you’ve enjoyed these five tips for becoming mortgage free sooner. There are other strategies where a Mortgage Broker will be able to assist further to match your personal and financial goals. I love the chance to get my clients funded but get even more pleasure when they are setup on a custom plan to enjoy their best life. I invite you to connect with me at anytime to discuss your own path to mortgage freedom!
All the best,
Sukh Sangha