Have you ever sat down and calculated how much money you are actually paying for your home? If asked, most people will quote their purchase price as how much money they paid for their house. However, the amount of money that you actually pay for your house is significantly more than that. Confused? Well consider this: A $300,000 mortgage amortized over 25 years at a rate of 3.29% will end up costing you an extra $139,423.88 in interest payments. With some help from your bank or mortgage broker, you can find ways to drastically reduce the interest you will pay on your mortgage and become mortgage free quicker.
Consider our happy newlyweds Dick and Jane. They live in Burlington, Ontario and their Burlington Real estate Agent has found them a three-bedroom, two-storey home. They owe $300,000 on their 25 year mortgage at 3.29%. Right now, they are making monthly payments of $1,464.76. Let’s see what happens if Dick and Jane decide they wanted to pay off their mortgage a little quicker.
1st scenario: If Dick and Jane simply increase their monthly mortgage payment by doubling up 1 payment/year, they can pay off their mortgage in 22.2 years and save $18,113.96 in interest costs. By doubling up 2 payments/yr, you can pay the mortgage off in 19.9 years and save $31,972.12 in interest payments.
2nd scenario: If Dick and Jane paid every two weeks instead of monthly, they pay off their mortgage in 22 years instead of 25 years, and save $18,723.44 in interest costs.
3rd scenario: If Dick and Jane keep making their current monthly payment, but add an additional payment of $5,000 once a year, they pay off their mortgage in 17.3 years and save $47,159.25 in interest.
NOW, if Dick and Jane are really ambitious and set forward a very aggressive plan to make 2 double up payments a year (4 Bi-Weekly payments), switch to paying every 2 weeks and make an additional annual payment of $5000 towards the principal of the mortgage, how much would they save and how quickly would they be mortgage free?
Well, instead of paying $139,423.88 in Interest payments over 25 years, Dick and Jane will pay $70,581.44 in interest and be mortgage free in 13.7 years! That is an interest savings of $68,842.12.
If you are thinking of taking advantage of the low variable mortgage rates available right now, consider making payments on the mortgage at the 5 year fixed rate. This way you will put a significant dent in the principal of the mortgage and you won’t feel the pinch once interest rates climb up to that level down the road....because these rates won’t stay this low forever!
If you are looking for a Real Estate agent who can, not only find you your dream home, but show you how to pay off your mortgage quicker, please call me today and I can walk you through all of your options so you know what is available to you. You can reach me, Sean Kavanagh, at 905-220-9198 or by email at firstname.lastname@example.org