- On April 19, 2017
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Your mortgage is likely one of the biggest monthly expenses your household has. Most people spend an average of 25 years paying off their mortgage, but prepayment privileges can help you pay it off much faster and save you money simultaneously.
Although it can differ between lenders, most offer prepayment privileges as high as 20/20. This means you can increase your regular payment amount by up to 20% and apply lump sum payments towards your mortgage of up to 20% of your original amount each year.
An example would be on a $450,000 mortgage amortized over 25 years at a fixed rate of 2.44% where the lender allows for a 20% increase to your regular payments:
If you were to make your regular payments of $2,002.43 a month with no monthly increase, your remaining amortization after 5 years would be 20 years.
If you were to make your regular payments with a 20% increase, taking your payments to $2,402.92 a month, your remaining amortization after 5 years would be 14 years and 8 months knocking off over 5 years of amortization!
When a lump sum is paid towards your mortgage, it is applied directly toward your principal mortgage. A lower principal payment automatically decreases the amount of interest you will pay each month and will also reduce your scheduled amortization period. Using the example above, you would have the option to put up to $90,000 a year in extra payments on your mortgage. If you were to take advantage of this option alone, you could pay your mortgage off in less than 5 years.
Additional Tips to Pay off Your Mortgage Faster:
- Selecting a non-monthly or accelerated payment schedule
- Increasing your payment frequency schedule
- Making principal prepayments
- Making Double-Up Payments
- Selecting a shorter amortization at renewal
Hudson’s Bay Financial Services is proud to partner with True North Mortgage, the largest Canadian independent mortgage broker. They can help you find the lowest mortgage rate available with no hidden fees. Plus, you’ll earn Hudson’s Bay Rewards points through Hudson’s Bay Financial Services1.
Click here to learn more about a True North Mortgage and prepayment privileges.
And, if you’re in the market for a new home, learn what you can afford with the new mortgage rules.
1 Earn a one-time 5,000 Hudson’s Bay Rewards points when you complete either a pre-approval or regular approval application to lock in your rate; and 35,000 points when you fund a mortgage valued at $350,000 at a rate of 1,000 points for every $10,000 of a funded mortgage.