Close your eyes and imagine something with me...
The beginning of the month arrives and no mortgage payment comes out of your bank account - the cash just stays there! The same thing happened the next month, and the next. How much would your financial condition improve having that extra cash flow each month?
It is not a pipe dream, it just requires a little know how, some discipline and some short term delayed gratification.
Tips To Owning Your Collingwood Real Estate Free & Clear
A mortgage is usually the largest debt that one undertakes and as a result, many homeowners look to pay it off as soon as they can. Many however, just become comfortable making the required monthly payments without consideration of the available steps that could be taken to accelerate the paydown of principal and reduce the lining of the bank's pockets via interest paid.
In addition to reducing your overall debt, paying off your mortgage more aggressively frees up equity and cash flow which could be leveraged to purcase a second home or investment property. Why not put the money to work for you instead of your lender?
Have a look at the following strategies to reduce your mortgage principal.
Make bi-weekly mortgage payments
- Bi-weekly payments involve 26 half-payments each year instead of the standard 12 full payments. By making 13 full payments each year, you'll pay down the principal sooner and reduce the interest you'll pay over the long run. One thing to verify of course is that your bi-weekly payments are being applied to your mortgage on a bi-weekly basis and not just held until the end of the month
Increase your mortgage payment
- Most people have higher incomes a few years into their mortgage than they did when they first purchased their home. Keeping your payments on par with the increases in your income will help reduce your mortgage amount significantly and will also reduce the amount of your monthly payment over time as interest depletes due to accelerated reduction of principal.
Make Additional Payments
- If bi-weekly payments or increasing your monthly mortgage payment are not feasible, try to make extra payments when you have some disposable cash. Be sure to apply directly to principal.
Additional considerations when deciding whether or not you should pay your mortgage off early:
- Have other cash demands been satisfied? Have you accumulated six months in emergency reserves and paid off all other loans and credit cards? If so congratulations! Your mortgage should be next.
- Do you have monthly savings eamarked for kids college funds and your retirement?
- Is your interest rate so low that there are other vehicles to move your money into that will yeild a better return?
- How long do you plan to stay in the home? It may make more sense to keep your cash liquid if you might be selling in a couple years.
Rob McAleer is a Collingwood Real Estate Agent serving the needs of buyers and sellers in the towns of Blue Mountains, Wasaga Beach and Collingwood. As a former techpreneur, Rob brings 15 years of online marketing, project management and negotiations experience to the marketplace. If you are considering the purchase or sale of real estate contact Rob today to arrange a presentation of services.