How flexible is your mortgage? Putting down a little more, or a lot, can really make a difference.
Many lenders will offer some level of pre-payment privileges on a closed mortgage term. Of course, if you have an open mortgage, you can pay down as much as you want, with no penalties.
But as closed mortgage products make up the majority of Canadian home loans, there is usually some wiggle room. In fact, some mortgages may allow as much as '20/20' to be put down against your principal each year. This means you can increase your regular payment by up to 20% AND apply lump sum payments of up to 20% of your original mortgage amount, annually. These amounts go directly to your principal, shortening your amortization (length of mortgage) and saving you interest costs over the life of your mortgage.
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Let's take the 20/20 pre-payment privilege example, and apply it to a $450,000 mortgage loan:
If you can't squeeze 20% of increased payments out of your budget, adding even a bit more to a monthly payment here and there, or choosing an accelerated schedule, can shorten your amortization.
Dropping a one-time amount down on your principal every year can reduce the amount of interest you pay each month, and in turn can dramatically reduce your amortization period.
Using the 20% example above, on a $450,000 mortgage at a fixed-rate of 2.44% with a 5-year term, you would have the option to put up to $90,000/year in lump sum payments on your mortgage. If this was the only option you took advantage of, you could pay off your mortgage in less than 5 years.
Of course, we may all dream of being able to do that — but it’s not necessarily realistic. So, many lenders will allow you to apply lump sum payments in increments as low as $100 throughout the year, as long as you stay within that 20% allowance (or whatever allowance your lender provides).
With flexible mortgage options, you have the freedom to pay your mortgage off a lot faster, and save a pile of cash on your loan. We can uncover your mortgage fine print (do you have a restricted mortgage?), and provide the numbers for different payment scenarios to help you make clear decisions.
Or, if you need something different in a mortgage, we know what's out there, and which lender may be a better solution for you.
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