A mortgage is likely one of the biggest financial commitments you’ll make. With a quarter of a million dollars on the line and thousands of dollars in interest – it’s important you take the time to understand the optimal way to bring it down faster, saving you thousands of dollars of your mortgage as a result.
While it’s important always to check the terms of your mortgage (to make sure there’re no penalties or fees with some of these tips), the following six tips can help you bring down your mortgage and help you save thousands of dollars in the process.
1. Commit to Making 13 Payments a Year
Making the commitment to pay an additional monthly payment is a sure-fire way to save money on your mortgage. By adding in the 13th payment, the payment is applied to the principal amount of the loan, instead of paying down a portion of interest with minimal impact on the principal.
The total result of the savings can add up substantially over the years, saving nearly five years off the loan itself. Assuming there is a modest $1200 payment each year, you’ll save almost $47,000 in interest over the term of your loan.
2. Set Up Bi-Weekly Payments
Setting up a bi-weekly payment plan with your mortgage company is another simple way to save thousands of dollars of interest. By making bi-weekly payments, you’ll make a collective total of 26 payments – which adds up to a gross amount of 13 months (instead of the 12 payments with monthly arrangements. Similar to the additional monthly payment, you’ll save approximately $47,000 off your term.
3. Save a Larger Down Payment
Not only can the down payment increase the total property allowance you’re allowed to have, saving a larger down payment for the property can also lower the overall mortgage amount you’ll pay. By saving a total of 20% of your total home value, you’ll drop the price down by substantial amounts – instead of increasing the total value of your home.
For example, if you had a property value of $200,000; applying the $40,000 can adjust the value to $160,000 if you apply the total down payment to the value of the loan. Likewise, you could also apply the $40,000 to the home value to $240,000 – which would give a larger portion of the loan, but would substantially increase the interest and overall cost per month.
4. Reduce Your Property Assessment
If you believe your home’s value has decreased over the year, there may be savings at hand if you decide to have the value reassessed by the government. To accomplish this, simply contact your assessor and fight the assessment by asking to have the home re-evaluated.
If in the event your home is determined to be of lower value, the tax assessment will also lower your yearly taxes – which can save you money, depending on your local tax rate.
5. Remove Your Canadian Mortgage Housing Corporation (CMHC) Mortgage Insurance
If the down payment on your home was less than 20% of the total home value, you were likely required to pay Canadian Mortgage Housing Corporation (CMHC) Mortgage Insurance. The insurance is mandated to lessen the likelihood of defaulting on your loan (protecting the lender in the event of default).
Once you’ve paid down the premium to less than the 80% required of the home’s appraised value, you can petition to have the insurance removed.
There are a few ways the principal value can fall below the 80%; paying down the mortgage loan below the appraised value is one of the methods.
Alternatively, if your home has decreased in value, it may push the payment out of the 80% requirement. Attempting to remove your home’s CMHC Mortgage Insurance may require a new appraisal, but going through this process can save you hundreds of dollars from the monthly mortgage payment as a result.
6. Refinancing Your Mortgage
One of the most common ways to reduce your mortgage is to refinance your mortgage to a lower interest rate. By reducing your rate, you’ll also lower your overall monthly payment – which can help you improve the total interest you’ll have to pay throughout the term of your mortgage.
Although there are typically fees associated with the refinancing, the long-term savings outweigh the costs of refinancing. With the interest rates being at an all-time low, refinancing is a safe bet for anyone looking to save money and bring down their mortgage faster.
Before deciding to implement any of the above tips, it’s important to speak with your mortgage provider before making a decision. While most companies are willing to help you implement these methods, some lending institutions do provide fees for these services. Be sure to ask about any fees they have and determine whether those costs are worth it when it comes to implementing them.