Your mortgage: Simple tips to save money

Most homeowners would rather see their home last a lifetime – not their mortgage.

Here are some tips that will help you save money and pay down your mortgage faster:

1. Take advantage of prepayment privileges

If you know you’re heading into a windfall year, or if you happen to come into some unexpected cash, consider putting those funds toward your mortgage principal. Most lenders will allow you to pay up to 20 per cent of your original mortgage amount as a principal payment without incurring any prepayment fees.

Even better: It doesn’t just have to be a lump sum. Many lenders will allow you to increase the amount of your regular monthly payments up to 20 per cent, or double your payments (all money that exceeds the normal amount goes towards paying the principal), or any combination of the three, so long as it does not exceed 20 per cent of the original mortgage payment annually. This can be one of the fastest ways to attack the principal, lowering the interest over time.

2. Increase the frequency of your payments

Instead of making mortgage payments once a month, you can make payments on a biweekly or weekly schedule. By increasing your payment frequency, it whittles away the principal and reduces overall interest costs.

Even better: Consider accelerated payments. Typically, these are done on a biweekly schedule. This tip involves paying the equivalent of half of a regular monthly payment every two weeks.

This results in the equivalent of an extra month of payment every year (26 half-payments equals 13 monthly payments), which goes towards paying down the principal amount.

While this may not seem like much, over the course of your mortgage it adds up and can significantly reduce your amortization, making you mortgage-free faster. 3. Other money saving tips Consider using your home equity to unlock preferred borrowing rates. If you have car loans, credit card balances or other consumer debt, a consolidation loan secured by the equity in your home can help you retire those debts faster and significantly reduce your overall interest costs.

The key is to select the appropriate amortization period, say four or five years, over which to pay off the loan. Otherwise, you may end up spending even more on borrowing costs, even at a lower rate, if the time to pay back the balance is too long.

There’s not one specific strategy to use. To learn which combination of strategies best fits your life, contact us at Canadian Western Bank. We’re here to help.