How to Use Prepayments to Be Mortgage Free, Faster!

Using your mortgage prepayment options can drastically reduce the total amount you spend on your mortgage and shorten the time it takes to pay it down.. If you follow these three steps, you can be mortgage free sooner than ever!

1. Know your prepayment privilegesMORTGAGEPAYMENT Most mortgages have allowances for you to prepay down your mortgage faster. The standard prepayment amount allowed per payment can vary depending on your mortgage provider.

We can work together on your goals to ensure you have the flexibility you require to pay your mortgage faster. Your mortgage provider may be able to increase and decrease your prepayment privilege at any time throughout the life of your mortgage.

This means that if any life event occurs and you need to reduce your payment to the minimum, you can with ease. Most mortgage providers allow this free of charge, but with some providers you can only change your payments a set number of times throughout the year.

2. Increase your payments Anytime you increase your payments, the excess that you pay per payment goes directly onto the principal portion of your mortgage. This is a great way to drastically reduce the interest you will have to pay over the term of your mortgage.

Typical prepayments allow you to add between 10% to 20% of your payment amount to each payment, depending on your lender. Some lenders also allow the use of “double up payments” which let you double each payment!

Here’s an example of prepayments being used on a typical mortgage:

All calculations are based off of a $400,000 mortgage with a 5 year term and 25 year amortization at a rate of 2.59% with monthly payments.

No Prepayments:
Monthly payments: $1,809.84
Principal paid over 5 year term: $60,836.51
Interest paid over 5 year term: $47,753.89
Mortgage amount remaining: $339,163.49
Years remaining on mortgage after 5 years: 20 Years

Adding a 15% Prepayment:
Monthly payments: $2,081.32
Principal paid over 5 year term: $78,201.00
Interest paid over 5 year term: $46,678.20
Mortgage amount remaining: $321,799.00
Years remaining on mortgage after 5 years: 15 years & 9 months

As you can see, the mortgage was  reduced by $17,364.49 and saved $1,075.69 in interest! The mortgage term was  reduced by 4 years and 3 months in only 5 years!

3. Make a lump sum prepayment Making a large payment can be a great option for paying down your mortgage, but may not be ideal for everyone. Lump sum payments help you reduce the amount of interest you will be required to pay on your mortgage. They can also be used to reduce your mortgage amount before selling your home and will reduce the penalty you will be required to pay.

Lump sum payments are usually between 10% – 25% of the mortgage total. Typically, you can make a lump sum payment onto your mortgage once a year. Every mortgage provider has their own specific guidelines for how you can make a lump sum payment in a calendar year. Your provider may require you put down a minimum amount for a lump sum prepayment, or you may only be eligible for one on the anniversary date of your mortgage.

If you decide that prepayments are for you, you can achieve mortgage freedom sooner than ever!

Contact me today and lets set your goals into motion.

IMG_2894  Chris Turcotte, Owner/Broker

 Office: (204) 727-2177

 Cell: (204) 720-4002

 Email: chris@christurcotte.ca

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