Who doesn’t dream of being mortgage free?
It sounds like an impossible task to conquer. After all, there are many other monthly obligations that we have to keep up with such as car payments, consolidation loans, credit cards, children’s sports or post secondary education costs. It may seem that there is never enough money coming in to make a difference. The truth is, a small increase to your mortgage payment can make you mortgage free sooner.
Lets say you have a mortgage balance of $300,000 and the weekly payment is $355. This combination puts you on track to have your mortgage paid off in 25 years. This 25 years to pay it off is also known as your amortization. Now, increase that payment by $25 to $380 weekly and it reduces your amortization to 22 years 5 months. That’s makes just over a 2 1/2 year difference. That’s huge, especially if you increase your payment each year.
You have to check with your lender to find out what your pre-payment privileges are. Some lenders have stricter guidelines than others. If paying down your mortgage quicker is important to you, make sure you ask what their guidelines are. Most lenders allow, at the very least, a 15% increase to your payment each calendar year. Some allow the payment increase of 15%, PLUS a 15% lump sum payment, PLUS they may also let you match every single mortgage payment. Imagine what all of these combined could do to your amortization.
Where do you find the extra money to fund these additional payments?
One suggestion I have, is that anytime you receive a raise, make a point of increasing your payment. Perhaps you always get an income tax return each year. You can have fun with some of it but it wouldn’t hurt to make an extra payment to your mortgage. All the little extras you do will make a substantial difference in the life of your mortgage. It’s a good idea to review your finances on an annual basis. This way you will know if you are on track with your financial goals.