Thursday, 21 March 2013

A Great Leap Forward

I've updated the line on my wall!
            As mentioned yesterday I made a huge dent this week in my mortgage jumping from 22.5% owned to 30.4% owned.  This is courtesy of the fact that my bank allows me to pay up to 10% of my mortgage amount once every 12-month period.  As a result my mortgage dropped from $148,044.79 to $132,844.79.  Which is 3 and a half years gone from my mortgage.  (Only 255 months left if I stick to the regular repayment schedule, like that’s going to happen!) 
            I love the option that my mortgage has.  In fact I would council anyone who is shopping for a mortgage, especially if it’s a closed one, to look for extra pay off features.  It was a huge selling point for me when I was looking for a mortgage and I ended up going with the bank that offered three separate pay off options that I use. 
1.     I am allowed once every 12 months to pay a lump sum, up to 10% of my initial mortgage, directly against the principle. 
2.     Once a year I am allowed to increase how much I pay monthly by 10%.  So I went from an initial mortgage payment of $646.62 to $711.28 every month.  Next November I can increase it by another 10% to $782.41 a month. 
3.     I can double up my payments every month.  So at the moment every month I am paying $1,422.56 ($711.28*2), the second half of the payment goes entirely towards principle. 
The other feature offered at my bank, which I do not use, is an accelerated payment schedule, allowing you to make mortgage payments weekly, or bi-weekly, which results in a couple more payments a year than if you pay monthly.  I have stuck with monthly payments since I am paid monthly and it makes the record keeping a lot easier.  Add to that the fact that I am making loads of extra payments so I can afford to go monthly. 
Going with a bank that offers all, or a number of these options will allow you to pay off your mortgage a good deal faster, and result in a lot less interest.  That said I would not recommend that you put money towards your mortgage that you may need later.  I do have access to part of the equity in my home; at the moment my line of credit that is secured by my house has $19,955.21 available.  However, the interest rate on any money that I borrow from this line of credit is higher than the interest on my mortgage.  There is no point paying off a debt that costs you 3.09% only to borrow that money at prime plus 0.5 (currently 3.5%).  You will be paying more in interest and will be vulnerable to changes in the interest rate.  Before I make an extra payment against my mortgage I make sure that I have a solid emergency fund, that I have enough set aside to cover my expenses for a month, and that I have saved something for my retirement.  

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