Murder your mortgage

If you’re leery of the stock market and don’t know where to turn for a good investment in these perilous times, start at home. Bumping up your mortgage payment can save you a fortune over the years ahead. Consider a couple we’ll call Domenic and Joanne. They live in Calgary in a three-bedroom, two-storey home. They owe $200,000 on their mortgage at 6.5%. Right now, they are making monthly payments of $1,340 and are on track to pay off their house in 25 years. Based on their current schedule, they will wind up paying more than $200,000 in interest over the life of their mortgage. But consider what happens if they’re willing to pay a little more. 1st scenario: If Domenic and Joanne simply increase their monthly mortgage payment by $180 to $1,520 a month, they can pay off their mortgage in 19 years and save $53,510 in interest costs. 2nd scenario: If Domenic and Joanne split their current monthly payment in two and pay every two weeks instead of monthly, they increase their total mortgage payments from $16,075 a year to $17,415 a year. That means they pay off their mortgage in 21 years instead of 25 years, and save nearly $40,000 in interest costs. 3rd scenario: If Domenic and Joanne keep making their current monthly payment, but add an additional payment of $7,000 once a year, they pay off their mortgage in 13 years and save $107,000 in interest. In most cases, homeowners can arrange to take advantage of any of these options simply by calling their bank. But whatever strategy Domenic and Joanne choose, they should resist the temptation to choose banks’ latest mortgage deal, which consists of the ability to skip a payment once a year. While that may seem enticing, such a strategy would stretch out Domenic and Joanne’s mortgage payments to almost 31 years. They would pay a whopping $263,000 in interest costs over the life of their mortgage, or $61,000 more than if they had stuck with the original 25-year monthly payment schedule.