Take charge of mortgage

A friend just sent me a screen shot in Messenger. It took me a minute to figure out what it was.

The screen shot was a transaction list of her mortgage payments.

Early in the spring, she told me her goal was to get her mortgage balance under $100,000 by the end of the year. The screen shot finished with her most recent payment, which brought her mortgage balance under the magic number.

When she first shared her goal, we sat down over a coffee and played with some numbers. I ran scenarios so she could see what would happen if she increased her payment every month as compared to if she made lump sum payments.

We had a conversation about how she handles her finances. She felt that she would be more successful making extra payments if she increased her payment amount. This way, she would be obligated to make the higher payments.

People handle their finances differently. Income varies from industry to industry. Expenses can vary over the course of the year.

Most mortgages offer several pre-payment options (without penalty) to allow you to pay off your mortgage ahead of the scheduled amortization. Pre-payment options can include lump sum payments, double-up payments, or a combination of the two.

For a quick overview of pre-payment options, read How Do I Pay My Mortgage Off Sooner? 

If you are thinking that you would like to tackle your mortgage balance a little more aggressively, there are a few steps I recommend.

  • Take a look at how you have spent your money over the last few months.
  • Are you able to save money from month to month?
  • Is your savings account balance growing steadily, staying the same, or decreasing month over month?
  • Do you have lump sums coming to you (ie: annual bonus)?
  • Does your income vary or is it consistent every month? Have you had a significant increase in income?
  • Do you have the opportunity to take on extra work to increase your pay?

If your income has increased and you are saving money, it may be a great time to make extra payments on your mortgage. If you have extra money coming throughout the year, it might be smarter to make lump sum payments when the money arrives as opposed to making higher payments each month.

Using a mortgage balance of $350,000 and rate of 3.29 per cent, your initial payment would be $1708. If you increased your monthly payment by $100, you would pay your mortgage off 2 1/2 years sooner.

An increase of $100 a month may seem a little daunting. How about starting by increasing your monthly payment by $25 the first year? You will adjust your budget — maybe fewer coffees out.

Most likely you won’t even feel the increased payment.

Take stock after a few months or a year and make another small increase. It may not seem like much, but over the amortization of your mortgage small changes will add up to big interest savings for you.

Another way you can accomplish this is to switch from monthly payments to accelerated weekly or bi-weekly payments. The accelerated payment frequencies are calculated a little differently to pay more against your principal every payment.

Again using $350,000 at 3.29 per cent, your regular bi-weekly payment would be $788.13.

The accelerated bi-weekly payment would be $854.44. This is a difference of $66.31 every two weeks.

By choosing the accelerated payment, at the end of your first five-year mortgage term you would have 17 years remaining as compared to 20 years with a monthly or regular bi-weekly payment.

So where does the take charge of your mortgage part come in?

Many lenders have Customer Portals that allow you to sign in and play with calculators to see how extra payments will affect your mortgage balance and remaining amortization.

Some of these portals also allow you to make additional payments yourself without having to call the lender or go in to a branch.

If your lender doesn’t offer a customer portal for you to manage your mortgage yourself, setting an annual appointment with your lender to review your mortgage is a wise idea. Another time to do this is when your mortgage comes up for renewal.

OK, that’s enough heavy stuff.

Wishing you and your loved ones a wonderful holiday season filled with much love and laughter, and safe travels if you are heading away for the holidays. I’m looking forward to time spent with family.



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About the Author

Tracy Head and Laurie Baird help busy families find mortgage solutions. Together they have more than 45 years of experience in the mortgage industry.

With today’s increasingly complicated mortgage rules, Tracy and Laurie spend time getting to know the people they work with and help them to better understand the mortgage process. They support their clients before, during, and after their mortgage is in place.

Tracy and Laurie work closely with their clients, offering advice and options. With access to more than 40 different lenders, Tracy and Laurie are able to assist with residential, commercial, and reverse mortgages in order to match the needs of their clients with the right mortgage package.

They work closely with their clients to find the right fit, and are around to provide support for years down the road!

Contact them at 250-862-1806 or visit http://www.okanaganmortgages.com

Visit their blog at https://www.okanaganmortgages.com/blog


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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