Paying Off Your Mortgage

There are many ways to pay off your mortgage quicker than the set amortization period. You can change your payment schedule, increase a percent of your payments, or provide lump sum payments. However, the increases and lump sum payments are restricted by your prepayment privileges provided by the lender. For professional advice particular to your unique situation please call Harpreet Singh The Mortgage King at (416) 795-1919.

Modifying Your Payment Schedule

When calculating a monthly payment, you often have different options once you have chosen an amount, rate, and term. Modifying your payment schedule can not only shorten your amortization period, but also reduce the amount of interest you will pay over the life of the mortgage. You have the option of choosing a monthly, semi-monthly, weekly, bi-weekly, or accelerated payment schedule. Although the math may seem daunting at first, it is actually quite simple once explained:

We will start with your standard monthly payment. In this case we will use $1,500. Across the year you will pay $18,000 ($1,500 x 12 months)
Your semi-monthly payment will be $750 ($18,000/24 semi-monthly payments)
Your weekly payment will be $346 ($18,000/52 weekly payments)
Your bi-weekly payment will be $692 ($18,000/26 bi-weekly payments)

The above payments do not significantly change your amortization period. However, the accelerated payments do:

Accelerated payment schedules feature an additional month’s payment (in our case $1,500) in the same amount of time (in our case 1 year). Now our initial $18,000 yearly payment becomes $19,500.
Your accelerated weekly payment will be $375 (from $346)
Your accelerated bi-weekly payment will be $750 (from $692)

By simply incorporating this one additional monthly payment, your amortization period can be shortened by as much as 4 years. Also, you will save a significant amount of interest.
To calculate your specific scenario in relation to amortization period shortening and interest savings please use our Payment Analyzer.

Prepayment Privileges

Often lenders will include conditions that allow you to increase your monthly payments and provide an additional lump sum payment. Sometimes this can be on the anniversary date of the mortgage, or otherwise throughout the calendar year. However they place restrictions on the amount that can be paid. Some examples of privileges are:

15/15 option: Allows you to increase your payment amount by 15%, and give a lump sum payment of 15% of the original principal amount. There are many other options that resemble the 15/15 option such as 10/10, 20/20, 25/25, etc.
Double up option: Allows you to double a single payment, which will go straight towards the principal amount. This has the same effect as an accelerated payment schedule.
Skip payment option: Although it will not shorten your amortization, in fact make it longer, the option can be useful when there is an unforeseen financial demand

Following these simple privileges can shorten your amortization period by a significant amount. It is wise to increase your payments if you get a certain raise every year. This way, the mortgage is still within your budget.
 

For a more in-depth and professional review of your individual and personalized situation please give Harpreet Singh The Mortgage King a call at (416) 795-1919.

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