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23
Mortgage Financing: Mini Series - Part 3
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Mortgage Financing: Mini Series - Part 3
In Mortgage Financing: Mini Series - Part 1, we looked at Credit Bureaus. In Mortgage Financing: Mini Series - Par 2, we looked at Mortgage Terminology. Part 3 will deal with Pre-Payment options and is the first part of reducing your Mortgage burden quicker. Part 4 will deal with Pay Off Faster Strategies.
Pre-Payment
Conventional repayment of a mortgage involves the repayment of P&I (Principal & Interest). At the beginning of the repayment schedule, most of the payment goes towards the interest portion. As your mortgage repayment evolves, more and more of the amount will eventually go towards the principal. When you prepay according to set guidelines, your extra payments will be able to go towards the principal directly, thus skipping many normal payments, and saving you potentially thousands of dollars in interest down the road.
Pre-Payment Options
- Increasing the frequency of payments: By increasing the frequency of payments, you save money over the life of your mortgage. For example, instead of monthly payments, you can choose weekly or bi-weekly payments, thus repaying the principal faster and building home equity.
- Increasing the payment amount: Sometimes, it is possible to increase the payment amount by as much as 100% of your regular payments. For example, a 10% increase would significantly reduce your overall interest costs over the life of your mortgage.
- Making Lump-Sum Payments: Conventionally, you can make lump-sum payments of up to 15% of your original principal amount every calendar year, thus reducing your principal by 15% and catapulting you many interest payments down the line. This is the best strategy for paying off your mortgage quicker since it instantly reduces principal & interest.
There are many options available to you should you want to pre-pay your mortgage faster and thus accelerate the repayment. You should consult with your Mortgage Broker at one of the leading banks for the multitude of options available to you.
Pre-Payment Options: Download the Pre-Payment Options Printout.
Again, I wish to thank Linda Rudolph of TD Canada Trust for her help in compiling this information.
Linda Rudolph
Manager, Residential Mortgages
Telephone: (416) 282-1677
Fax: (416) 282-5299
Web: Linda Rudolph’s website here
For more information, contact:
Radu Medan
Sales Representative
Coldwell Banker Case Realty, Brokerage
416.250.9000
rmedan@trebnet.com
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February 23rd, 2007
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