My morning routine usually consists of grabbing a coffee, answering emails, reading up on the latest mortgage and real estate trends, and most recently trying to absorb as much information about the stock market and the turmoil in the United States. By no means am I an expert in the stock market or the downgrade of the US debt rating by Standard & Poor, but I'll gladly refer you to others if those are topics you would like to hear more about. In addition, I also follow up on queries from my website in regards to clients' questions on various topics. Most recently, I had a question about payment privileges and if you're looking to save some money on your mortgage, you can hopefully take advantage of this option.
The question: "Will I be able to make extra weekly/monthly payments if I want to and if so, is there a limit or minimum I should be aware of?"
Typically, payments of up to 15%, 20%, or even 25% of the original principal amount are allowed each year. The minimum payment amount is usually set at $100.00.
- You may also increase your current payment by up to 15%, 20%, or even 100% each year.
- Some lenders also offer the option of doubling any and all payments.
The above options are "non-cumulative", lenders embrace a "use it or lose it" policy, meaning that if you do not use your 15% or 20% privilege in year one, you cannot make a 30% or 40% lump sum payment in year two. Passing up on privileges in any one year does not affect your privileges in future years.
- With each payment (weekly, bi-weekly, or semi-monthly) you can apply a small incremental amount of money directly to the principal. This privilege is designed so that every 12 months you make the equivalent of 13 payments.
An example of how taking advantage of even one of these privileges can save you thousands is easily illustrated with the Accelerated Payment Program.
On a $280,000.00 mortgage that is amortized for 35 years at 5.3%, the regular bi-weekly payment would be $671.54. The accelerated bi-weekly payment would be $728.36. This would allow you to pay your mortgage off in 28.4 years. Using a constant interest rate, you would save $73,068 in interest expense.
If you were to make a lump sum payment of 2% each year on that same mortgage and just make regular payments, you would pay off the mortgage in 19.75 years and save $161,451.00 in interest expense...all for an investment of only $5,600.00 each year, and you would be mortgage free 15.25 years earlier!
This example is courtesy of TMG The Mortgage Group Canada Inc.
As always, I encourage you to contact me if you have any questions with your current mortgage or are looking for one. Please find me on facebook at Jason Nesseth l Mortgage Specialist l British Columbia and on twitter @jasonmortgages.
"Working with you for the life of your mortgage!"
If you have any questions or comments about this blog, please feel free to call me at 604.375.7375, email jason.n@mortgagegroup.com or visit my website at jasonnesseth.com