Early Payoff Equals Guaranteed Profit
Many Canadians are becoming aware that the payments made on their mortgage are after tax dollars, meaning that the mortgage is taking a larger amount of their disposable dollars every month. Compared to our American neighbors who deduct part of their interest payments from their annual tax liability, Canadians pay more for their home and are learning the best use of any disposable money is to apply that money against the principal of the loan and save thousands of dollars by early payoff. It is best to get the advice of a mortgage broker or financial planner before making a decision on the best route to take. It is mathematics, but you may need to balance early payout penalties or just get the best return on your investment (ROI). There are several simple suggestions you can take to your paid professional.
Make payments more frequently
Any payment made above the contracted monthly payment shortens the length of the loan and saves money. Making two separate payments every month will shorten the loan by at least one contracted payment per year. The money put away for emergency funds would be a good source for this extra payment. This method is a small change in amount of payments to be made, so it would be best used to enhance another method such as making lump sum payments with tax returns.
End of Term Financing
If payments have been made on time, and the borrower has stable income combined with the number of payments that have been paid can insure a lower payment. At the end of each term the principal is smaller, so if you are not in dire straits financially, continue to make the same old payment as before. Again, any payment made above the contracted amount will lower the principal. Always be aware of the penalties if your contract does not include early payoff.
Tax Returns Lump Sum Payments
Instead of planning to splurge on the short term thrills like a short vacation or party stuff, take the unplanned monies gained with the tax return and apply that amount to the principal. Invest that money in the short term future. Your financial advisor can guide you what is best for your financial situation. In a couple of years when you are mortgage free, celebrate with a longer vacation and a mortgage burning party!
Double Up
This only makes sense when you are financially able, and you can choose not to, but making a double payment on the regular due date will shorten the length of the loan. The more double payments you make the sooner you will be mortgage free. It does not however, make sense to not pay another bill, so make sure that it is really something you can afford. It is beneficial to pay off the mortgage early. If your current income will not afford you to keep an emergency fund and make extra payments you may need to find another stream of income to help out for the short term. Do not dismay remember if you pay off early the extra effort, I am sure is worth the thousands that will be save and the opportunities for investment of future monies. Paying off the mortgage early is the bottom step in wealth building. One couple paid off their mortgage in three years, but they made the choice to live on the same budget they lived on when they were students, while taking on extra jobs, and income fitting one who held a Graduate degree. That is a lot of sacrifice and many of us don’t have that same desire, but wouldn’t a Chevy instead of a Caddy be ok for a couple of years?
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Gurmit loves travelling; he has been over 70 countries. He speaks fluent Cantonese, Polish, Hindi, Punjabi and English. Gurmit is an author, writer, insurance and mortgage expert. He frequently writes on various topics of interest to his readers. Gurmit Singh is a licensed mortgage expert with Dominion Lending Centres Mortgage Villa.
Gurmit Singh, mba
Mortgage Expert
M08009905
Dominion Lending Centres Mortgage Villa (11574)
Email:gurmit@gurmitsingh.ca
Website: http://www.gurmitsingh.ca
