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CIBC Pace It
Most Canadians focus on their mortgage rate. But if you want to save thousands in interest and shave years off your debt, put these tips to work for you.
Each month add a set amount to your regular mortgage payment. Even an extra $15 or $25 per payment adds up. For instance, if you paid bi-weekly and added an extra $25 per payment, after five years you would have reduced the principal loan by 2.5% over the life of the debt (assuming a 2.85% fixed five-year rate on a $450,000 mortgage amortized over 25 years), for more than $7,350 in savings.
Do you get a bonus from work? What about an annual raise? When your annual, monthly or hourly payroll increases, consider applying the extra to your mortgage. You won’t miss the money as you’re already disciplined about living on the original sum you were earning—and the extra funds will go a long way to reducing the principal mortgage debt.
If you want to pay-off your mortgage debt faster, a good, safe bet is to double-down on your regular mortgage payments in any given year. By paying double the amount you typically owe, say four times per year, you can shave a thousand or more off what you owe and this translates into months or even years off the amortization.
Getting a refund this year? Use your refund to pay down your mortgage. Your regularly scheduled payments won’t change, but when it comes time to renew you’ll be thankful for the lump-sum prepayment.
If you invest in bonds or guaranteed investment certificates, consider using these investments to pay off your mortgage principal once they mature. You’ll be trading in one low-risk investment—for another low-risk investment (a return on bonds or GICs for a paid off mortgage), so you won’t be adding risk to your expected, future return.
If you recently came into some unexpected money—say, through an inheritance or because you won the lottery, or even an unexpected investment gain—use the sum to pay down your mortgage principal. Keep in mind that every lender and every mortgage have their own prepayment rules. Some allow monthly double-up payments, some allow as much as a 20% lump-sum prepayment (of your original mortgage principal). To save yourself from incurring a prepayment penalty read your mortgage document or contact your mortgage lender.
This article is presented by CIBC Pace It, as part of the MoneySense guide to debt management.
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I am so lost! My Mom left me the home I grew up in and the Deeds and property taxes have been in my name! The lender told me Jan 2021, that we had life ins on the mtg and it is paid off & congratulations I’m a new homeowner! I’ve been making mtg payments since until Rocket (Mtg origination with Quicken) sent me a fraudulent default letter in June 2022? And they’ve just sent me another fraudulent default after I went and got a grant for the first one of almost $8,000.00, brought my acct current! Then, agent doesn’t return my payments back to what they were originally and my first payment is almost $700? I told her that I wanted to see if she could help me with that and offer a deferred payment this time since I just got it current? She didn’t and told me that the following month I’m getting a refund of about $700 and I’m to endorse that check and send it to her to make my payments for me? I told her that wasn’t going to happen and that I dispute the first payment and I’m requesting a counselor to meditate between us because we aren’t communicating and I wanted to know what is going on with the life ins that I was told Jan 2021 paid off this mortgage? She told me I was going to have to hire a lawyer to find out that information ? I just got a letter from a lawyers office representing Rocket! And I have until Nov 2 to denie the debt or agree that I owe it? And yesterday I was served with papers saying I have come to court? I can’t lose my home! M Walker