How To Maximize Your Mortgage

How to maximize your mortgage

By: Michael Anthony Lloyd: Guest Post for Canadian Budget Binder

Many people get into their first home and are so busy fixing it up, moving in and just getting used to their new home they quickly forget about their mortgage, other than that big chunk of cash that goes out of their account every month.

They are losing money by ignoring it!

Many banks don’t explain much in the way of “best practices” with mortgage repayment.  One of the simplest is paying your mortgage on either a Weekly or biweekly basis to speed up the repayment process, but beware, some banks offer non-accelerated weekly or biweekly which do nothing to pay back your mortgage faster!

Follow this simple system when setting up your payments:

  • If you are paid every 2 weeks, pay your mortgage with biweekly accelerated
  •  If you are paid any other way, pay your mortgage weekly accelerated.

The reasoning is simple, say your mortgage is $1000 per month, paying biweekly accelerated puts more onto your mortgage in a year ($500 x 26 = $13,000 vs. $1000 x 12 = $12,000), same with weekly accelerated ($250 x 52 = $13,000).

So apart from your mortgage payment, what else can you do to pay your mortgage down faster?  Obviously making extra “prepayments” will help, but you may be surprised how much of an impact they can have.

First you will have to check with your lender to confirm how prepayments are allowed.  Some only allow the prepayment on the anniversary date of the mortgage each year, some allow them to be taken pretty much at any time, as long as you don’t go over the “free” prepayment allowable with your lender (once again, check with your lender, most are 10 – 15% of your original mortgage balance, some more, some less).

If your lender is easy-going, make a regular extra payment every month or quarter, based on what your budget allows.  If you find after a month or quarter you have an extra $100 or more (this is the general minimum prepayment allowed), advise your lender and make this as an extra payment.  It makes a difference, take a look at this comparison:

On this $300,000 mortgage amortized over 30 years, simply paying your payment on biweekly accelerated drops it down to 26.3 years…paying an additional $100 per month (or $300 per quarter) drops it to 23.5 years. 

  • Obviously prepaying more will knock the mortgage down even faster.

So what else can you do to get rid of your mortgage sooner? 

Most lenders will not contact you when it makes sense to break the term of your mortgage and move into a lower rate.  Just because you took out your mortgage a year or so ago, doesn’t mean you have to stick with it regardless.

Depending on your lender, how they charge penalties, and the current mortgage rate environment, it may make sense for you to pay the penalty (and even include it into the mortgage) and move to today’s historically low rates.  I’m obviously biased, but a good Mortgage Broker can easily run the numbers for you and let you know if it makes sense to make a break.

With today’s small fluctuations in fixed rates, you may be surprised how much the penalty can drop when rates go up, making it more economical to make a change. Once you make that decision, really take advantage of the lower rate on your new mortgage by keeping your payments at the same level (or higher if you can afford to) to maximize the rate savings.

I think we would all agree that it is not about “if” mortgage rates will go up, but “when”.  With this in mind, we wanted to help our clients and others pay their mortgage down faster and came up with what we call “Money in Your Mortgage” or the “Inflation Hedge Strategy” it’s a software program we have written that is built to make the most of the low rate environment we are all living in and ensure you don’t suffer payment shock in the future.

What’s payment shock? 

It’s what a number of our American friends suffered when their teaser rate mortgages in the US came due and their payments skyrocketed, causing a number of the foreclosures we are all too used to seeing there.  This program is pretty simple and is explained in detail on the link, but in a nut shell, whenever the rate at your lender goes up, we email you to remind you to increase your payment accordingly, so that at the end of your term, you are paying the same amount you would be then, you won’t have any shock, and you will have made extra payments on your mortgage, paying it down faster and maximizing your low rate…we call this mortgage Optimization.

This is a free service, and you are under no obligation…we just feel strongly we as Canadians need to do everything we can to help each other not suffer through what the US has.

Tell me what you think…link

Michael Anthony Lloyd is a Mortgage Expert with DLC Canadian Mortgage Experts and has been helping Canadians with their mortgages as a Mortgage Broker since 1999.  Helping Canadians reach their “Mortgage Freedom Day” sooner is his goal.  He writes a Blog called The Daily Dig as well as leading the DLC CME team of 75 brokers.

All Photos: Copyright 2012 Michael Anthony Lloyd

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Mr. CBB
I’m from the UK and now a recent permanent resident in Canada. I bought my first house at the age of 21 after University then my second at the age of 24. I’ve always been fascinated with personal finance, savings, learning to make money and watch it grow while combating debts along the way. Canadian Budget Binder is a place where I get to share my experiences with personal finance and learn about yours along the way. I hope you stick around and check me out on Twitter, Facebook and Pinterest where I am active on all social media sites. Cheers, Mr.CBB
Mr. CBB
Mr. CBB

Comments

  1. Sandy D says:

    Thanks for your article Mr Anthony. I can see it would be wise to sit down with the bank that holds our mortgage to see if we are on the accelerated payment you refer to. We are paying weekly with the idea that this will pay off the mortgage faster but if that is not the case perhaps we need to review this. Again thank you Mr. Anthony and Mr. CBB for inviting this post :)

    • Hi Sandy,
      Thanks for your comment. We pay our mortgage weekly as well accelerate actually. We also put down extra on the principle each month as our term allows this.
      Michael will be around to comment on all posts if you have any questions.
      Thanks for stopping in at CBB …
      Happy Easter
      Mr.CBB

  2. Wendy LeDrew says:

    This is very interesting to know. I had no idea about some of these steps in paying off your mortgage quicker. I will have to look into when & how I can make extra payments as well. Thanks.

  3. Thank you Michael for this wonderful article! I pay accelerated biweekly but had no idea how much of a difference it makes!

  4. Very helpful article on mortgages!

    Each house I have owned was setup with weekly accelerated payments.

    I always used a 5 year fixed rate, which looking back, probably wasn’t the smartest. Twice I decided to sell prior to the end of the 5 year period and twice I paid large penalties based on the current interest rates.

  5. Glad you are finding it useful! It is really important to use the benefits available to you in your mortgage. I strongly urge you to confirm you are on an accelerated payment plan (weekly or biweekly), many in the branches aren’t even sure of how this works. Most original mortgage documents will show the monthly payment, take that amount and split in 1/2 for biweekly accelerated, in 1/4 for weekly accelerated. This alone has a huge impact. I think with this low rate environment we are in it is really important to get used to paying more and benefit from this.

  6. Thank you for the informative post.I’ve never had a mortgage, but i’ll definitely remember your tips. I love when topics make me think about things I’ve never thought of before. Hopefully it won’t be too long before we buy a house! Have a great weekend.

  7. canadianmdinvestor says:

    I went though this, until I was mortgage free.

    There is no greater feeling!! No one owns you!

    Folks sometimes talk about investing you extra money & you may earn, more than you save, by paying off a mortgage. This fails to take in to account one major factor…the psychological mpact of knowing you are mortgage free,. YOU own your dwelling. Nobody can take it from you. Do not discount this simple, but powerful benefit.

    Little off topic, but may help someone focus, on the end result!

    • You are 100% correct about the psychological impact and that’s what we are starting to feel knowing we can pretty much pay our’s off if we wanted to shortly. Once that is done the world is in our hands and we can do whatever we need to with our NET incomes.

      How long did it take you to pay off your mortgage? How old were you? If you don’t mind sharing, if it’s personal don’t worry just nosey that’s all lol. I like to learn from others who have the same mindset as I do.
      Cheers

  8. I have been talking about “Mortgage Freedom Day” a lot with my clients, as really that is the goal. It is never easy (nothing worthwhile ever is), but with commitment and a plan anyone can reach it if they want to.

  9. I just wrote a post about my mortgage renewal process. i long to be mortgage free and we pay biweekly to accelerate that. We also put a portion of our income tax returns on the mortgage and make extra payments throughout the year when we can. Mortgage Freedom Day here i come!!!

    • That’s our goal and we are so close about 20k off right now unless we dip into our tfsa and we should be ok.. but we don’t want to be drained of our liquidity… so we will build up our Emergency Savings until then… Mortgage Free will be the best day ever! Mr.CBB thanks for posting!

  10. Wendy LeDrew says:

    Thanks for sharing this post. It was very informative. I actually pay monthly payments, but after reading this article, I am definitely going to look into paying bi-weekly..wow, it makes all the difference hey?

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