Want to gain speed to be 'mortgage free' sooner?
Flexible pre-payment options can help you pay more down, more often. You might be surprised at how much (mortgage) money and loan time you could save.
Every extra payment you make reduces your mortgage principal over time, reducing your interest costs and shortening your amortization so you can pay off your mortgage early.
So what are your options? If you have a standard closed-term mortgage, you likely have pre-payment privileges (depending on the lender) with your variable or fixed rate product.
That's good news — and how generous or flexible those privileges are can make a difference in your race to be mortgage-free.
Here's how those privileges can work to pay off your mortgage faster.
At True North, we're always talking about a 'better' mortgage. That's because, along with getting your best rate, we believe flexible pre-payment privileges are essential and can help you save even more.
Here's some advice we give our clients on how to get ahead of interest costs:
Even putting an amount down now and then, whenever you happen to have a bit of budget room or extra funds, can add up to a real difference in your mortgage timeline and savings.
Stay within your mortgage pre-payment allowances! Be careful about how much you put down and when. Your privileges, outlined in your mortgage fine print, also come with a penalty if you pay too much, which can impact the lender's costs and expected revenue for your contracted time.
That penalty can be more expensive with a fixed-rate mortgage, as a lender uses IRD (Interest Rate Differential) calculations that can cost thousands more than a 3-month interest penalty that typically comes with a variable-rate mortgage.
Some mortgage products, such as those offered through our in-house lender, THINK Financial, may allow you to put down as much as 20% against your principal each year.
This allowance means you can increase your regular payment by up to 20% or make annual lump-sum payments of up to 20% of your original mortgage amount (or a combination of both, up to 20%).
Let's take the 20% pre-payment privilege example and apply it to a $450K mortgage loan:
If 20% is too much to squeeze out of your budget, a smaller increase or adding a bit more to a monthly payment here and there can still shorten your amortization over time to save more.
Using the 20% example above:
A fixed-rate mortgage carries higher penalties for early repayment. A variable-rate mortgage typically has a less expensive penalty.
But with no penalty to pay down as much as you want, as often as you want — an open variable mortgage offers the most flexibility.
This product often comes with a higher rate than a typical closed variable-rate mortgage, and our No-Commitment Mortgage offers the best open variable rate in the industry.
Have questions? Apply now or contact a True North expert broker for personalized mortgage advice.
Choosing an accelerated payment schedule can also reduce your mortgage principal and save you thousands. The fastest schedules are bi-weekly or weekly accelerated, which can knock off up to $61K in interest and 3.5 years off your mortgage.
Some lenders, like our in-house lender, THINK Financial, allow more frequent payment changes if needed, while others may allow a change only once a year or charge for it.
No matter your lender, we can run the numbers to find the best option for your budget and mortgage needs.
Do you have a restricted mortgage or not enough options? We can help you uncover the fine print to see what's available to you.
If you're looking for a different mortgage product that lets you stretch a little, we know what's out there and which lender or product may be a better solution.
And — don't forget to talk to us when it's time to renew. We may be able to help you find a better mortgage fit (and a better rate) to save you a pile of cash.
Of course, many homeowners dream of putting more down on our mortgages — but that's not always realistic.
Some lenders allow you to make lump-sum payments in increments as low as $100 throughout the year, as long as you stay within that 20% (or whatever your lender allows). It all helps!
A little here and there can go a long way, and you may find that your efforts help you travel faster down your mortgage-principal hill — to a 'mortgage-free' party sooner than you thought.
Talk to us! Our friendly, expert brokers can outline your options and provide the numbers for different payment scenarios to help you make clear decisions. We love to help you save and reach your financial goals!
What pre-payment rules do you have? And will it cost you? We can help.
Cast ahead after pre-paying your principal — and reel in lower payments for a budget break.
Two different kinds of mortgage rates. Two different mortgage strategies.
