One of our customers once emailed me and asked …“Kelvin – it’s not just about GETTING a mortgage is it? It’s all about what happens after that. How do I pay it off faster? What’s the trick?” I couldn’t but think – she is SO right. There is so much info out there about how to get a mortgage…but the key to saving money is what happens next.
This article is dedicated to that customer, as well as anyone else who wants to adopt great money practices to pay off their mortgage faster. (And just to be clear – that should be anyone WITH a mortgage.)
#1: Switch to Rapid Payments.
Consider this…with a mortgage of $300,000 amortized over 25 years (basically an average mortgage), this would save you $19,887 in interest payments, plus cut 2 Years off your mortgage (based on an interest rate of 3.52% - our average best 5 year fixed rate over the past year). That’s right…$19,887 and 2 Years!!! (And if you don’t believe us, do the math by using our Mortgage Calculator.)
SO - how do rapid payments work exactly and why do they save you a small fortune? Take Bi-weekly rapid payments for example. This splits your monthly payment in half and means that you pay it every other week. The result? You make one extra full payment a year. That’s right – that one extra payment spread out over the course of the year, saves you a butt load of interest.
#2: Make Lump Sum Payments.
So let’s go back to our example, you’ve got a $300,000 mortgage amortized over 25 years (again – an average mortgage)…making lump sum payments of only $1,000 a year would save you $10,747 in interest, PLUS cut 1 Year off your mortgage.
Now I know what you’re thinking…I don’t have an extra $1,000 bucks lying around every year. But consider this - saving $1,000 a year means putting away $83.50 each month (or cutting back on 17 lattes). Everyone’s budget is different so take a look at your expenses and see how much you can put aside. Just think of all the money you’ll be saving in the long run.
The great thing about lump sum payments is that the payment goes directly towards the principal of your mortgage, in other words you’re paying down your mortgage directly instead of just paying pesky interest.
#3: Do NOT Sign Your Mortgage Renewal Letter.
You’re a few months away from your mortgage renewal and chances are, you’ve completely forgotten about it. So you get a letter from your bank letting you know that it’s time to renew but not to worry, because all you need to do is sign this letter, send it back to them, and they can renew it for you automatically. Phew! Sounds easy enough! Don’t ever ever ever do this. Ever.
First of all (here’s a newsflash) the bank will NEVER give you the best rate straight off the bat. So even if you’re sticking with your current lender – make sure that at the very least you negotiate your rate. Secondly, consider looking at other lenders. Compare the market and find the current best rates. If your lender can’t match the competition – consider switching teams.
TIP: Don’t Forget Your Renewal Date!
Put your renewal date into your electronic calendar (even if it is years away)…OR – sign up for a mortgage renewal reminder from RateSupermarket.ca. We’ll email you 120 days before along with the current best mortgage rates.
#4: Compare Mortgage Rates.
The bottom line is those that compare mortgage rates save BIG money. Now I don’t mean for this to be a pitch for RateSupermarket.ca, BUT users on our site who compared rates on average save 72 basis points (or 0.72%) on their mortgage than those who opted for the big five banks’ discounted rates.
Now what does this mean in terms of $$ savings? Based on an average mortgage (remember our $300,000 mortgage amortized over 25 years?) users who compare on our site would save $34,907 in interest over the course of their mortgage.
Let me repeat that…$34,907!!! (I had to make the font bigger there since this was such a mammoth amount of savings.) Plus as an added bonus (like that number isn’t reason enough), comparing rates gives you negotiating power with your lender.
Think of it like when you’re shopping for a big screen TV…you wouldn’t dream of making that purchase until you’ve compared prices at Future Shop, Costco., and Best Buy. Because not only do you want to get the best deal out there, BUT you could always get a price match.
If you’re looking for a great way to compare, check out our site and compare mortgage rates to see how much you can be saving.
That’s it for this week! I hope that you learned some great ways to kick your mortgage in the butt and pay if off faster. Next week is our final article in this series, where I’m going to break down for you why to use a mortgage broker.
Have a great weekend,
Kelvin Mangaroo
President, RateSupermarket.ca
PS – If you’re the visual type, we have a great Infographic that walks you through how to SAVE $65, 541 on your Mortgage.
If you like the site, please subscribe for free email updates.
Your support will ensure that I can continue to provide top quality free content.
Just followed you on twitter.. Hopefully I'll win!
My wife and I have been paying $900/month extra on our mortgage, that will allow us to pay it off in 12 years and save almost $150k in interest. I think anyone who tried could save $1000/year and apply it to their mortgage.
October 11, 2011 @ 2:01 amThanks for entering the contest Ben! I've done a similar thing myself and focused heavily on paying down the mortgage by paying more than double our actual payment amount every month and also paying the full 10% annual prepayment almost every year. That has allowed us to pay off the mortgage in 5 years and we will be making our very last payment in a few short days - WOOHOO!
I have no idea how much that will have saved us in interest - but I'm sure it's a lot. Of course, our mortgage is MUCH smaller than yours by the sounds of it and we'll eventually move into a bigger and much more expensive house and have to take a new mortgage all over again. At least we'll have a large down payment to start with though!
October 11, 2011 @ 9:05 amGreat tips. When we got our mortgage we signed up for a rapid plan. We wanted to max out our payback potential which so far has worked out quite well. We are hoping to have it paid off in the next 5-7 years.
October 11, 2011 @ 11:05 amI've never been a really big fan of the rapid schedule myself Miss T. because I like to pay my mortgage twice a month when I would normally receive my salary payment just to keep things nice and simple. I'd rather just increase the amount of my mortgage payments by a tiny bit instead. However, it is a great way to cut some time of the mortgage especially if you get paid every 2 weeks instead of twice a month.
That's one thing I really like about my RBC mortgage, they are ultra flexible with the payments. You can increase your payment up to double the usual amount and in addition to that you can increase your actual standard payment amount by 10% each year too if you so desire. That means you can end up paying significantly more than double your starting payment if you want to get really agressive!
Then, if times get tough, they allow you stop paying your mortgage entirely for as long as you want until all your overpayments are used up and you are back on your original payment schedule again (i.e. 25 years from start to finish). For those that pay their mortgage down quickly, that means that you could easily pause your mortgage payments for 10 years or more if you came upon hard times.
October 11, 2011 @ 12:26 pmJust don't sell your house.. rent it out and use that money to help pay for your next house! Congrats on paying off your current house! Wish we were there ;)
October 12, 2011 @ 4:56 pmYes, that is definitely one option we could pursue. The thing is I absolutely abhor the idea of being a landlord. I don't want to chase people down for rent, fix their problems, nor deal with the extra hassle of it. My real job, this site, and my life at home keep me more than busy enough as it is!
October 12, 2011 @ 10:41 pmThanks for the tips. Once I get my other debts paid off, I'm going to focus on using the lump sum payments to pay down my mortgage faster. My strategy in general is not to over-commit to big monthly payments (like a 15 year mortgage), but to throw in extra money when it becomes available (which I will review once a year).
February 03, 2012 @ 10:30 pmPost new comment