Helpful hints to take sting out of a mortgage
Daily ways for homeowners to save their pennies and make lump-sum prepayments
My husband and I paid off our 25year mortgage in about half the time.
I know what you’re thinking — no, we’re not rich. In fact, we’re both self-employed (as a journalist and a software developer). But the fear that comes with not being able to rely on a steady paycheque was definitely a motivator. And we had one highly successful technique: We took advantage of the opportunity to put down an extra lump sum on our mortgage of up to 10 per cent a year.
The beauty of making lump-sum prepayments is that you’re not wedded to a steady mortgage payment that is higher than you may be able to handle. As freelancers, my husband and I didn’t want to risk getting behind in our payments. Instead, we made minimum payments and then slapped down as much or as little money as we managed to put aside during the year.
For some, this is the main disadvantage of lump-sum prepayments: If you’re not locked into those additional savings, somehow that money just seems to melt away. In fact, according to a Canadian Mortgage and Housing Corporation (CMHC) survey a few years back, about 75 per cent of recent homebuyers fully intend to pay their mortgage off sooner, but only about a third of them ever make a lump-sum payment.
The first step in ensuring you’re one of the successful ones is to ask whether your mortgage gives you the option. Most will let you make annual prepayments of up to 10 or 20 per cent of the principal without charging extra fees. But some no-frills mortgages limit the option to pay off your debt early.
The next (and most difficult) step: free up cash. Here are a few tips to help you get there:
Do it yourself Unless you’re buying a brand-new home, there’s a good chance it will need some work — in fact, the CMHC found 55 per cent of new homeowners were likely to undertake major repairs or improvements to their house costing $5,000 or more within the first five years after purchase.
Hubby and I took on a range of tasks ourselves, from removing a whopping seven layers of wallpaper from our walls, to painting, decorating and even installing the dishwasher. Sample savings: $5,000-plus for painting a 1,600-square-foot home; $150-plus to install a dishwasher.
Put it off until you can afford it Hit up parents, grandparents and friends for hand-me-down musthaves like beds, couches and chairs. And hold off purchasing the rest until you can buy what you want. Our dining room was sans table and chairs for a good eight years. Sample savings: $10,000 or more.
Take a strategic approach to grocery shopping At the risk of stating the obvious — you’re a homeowner now and you need to watch your pennies. My approach to grocery shopping is to peruse the flyers, come up with a menu plan based on the specials, and then pick up everything I need to prepare dinners for the week (so I’m not popping into expensive convenience stores in a pinch). Double the quantity and stick a second portion in the freezer. Instead of buying expensive convenience food or (worse) eating out, you’ll have your own frozen prepared meals that are cheaper and healthier. Sample savings: $60 per week or almost $3,000 per year.
Get to the points I’ve never been a coupon clipper — too much organization required. But I love grocery and pharmacy rewards plans that allow you to accumulate points and use them for everyday purchases you’d likely make anyway. Just make sure you’re buying only things you need and you get them on sale. Sample savings: Conservatively $500-plus per year.
Talk to your service providers regularly Here’s a little secret: Your Internet and cellphone providers can give you a discount. But they’re not going to do it unless you push for it. They’ll offer you a great rate to sign up and then adjust that rate higher over time. They see you as a captive audience; and it’s your job to disabuse them of that notion. Hubby and I bundle services to give us more bar- gaining power and we never lock in for a certain term. Then we call every few months with the latest offer from a competitor in hand.
“Give me a reason not to leave you,” is my husband’s classic line. Often the overall bill comes down by as much as a third. Sample savings: $60 per month or $700-plus per year.
Opt for a staycation By the time you factor in accommodation, dining out and potentially airfare, vacations cost a bundle. And we already live in a world-class city. When’s the last time you explored it? Stay home and take advantage of all the free things Toronto has to offer, from the High Park zoo to the Toronto Islands, the Beach’s breezy boardwalk, the tempting stalls of the St. Lawrence Market and a host of summer festivals (the Busker Festival is one of my faves). You can even treat yourself to a couple of nice dinners out and still pocket plenty of cash. Sample savings: $1,500 minimum for a week’s vacation.
Sock it away There’s no point getting in the savings habit if you’re immediately going to spend that money on something else. Stick it in a special account dedicated to mortgage prepayment.