Purchasing a home is likely the single largest investment that most of us make in our lifetime, and it can lead to a big debt for homeowners. The thought of making payments for the next 25 years or so may seem daunting, but there are ways to pay off your mortgage faster which can vary depending on your lender.
Most mortgages offer pre-payment privileges that can be as high as 20/20. This means that you can increase your payment by as much as 20%, and apply 20% as a lump sum payment each year. For example, using a $450,000 mortgage over 25 years at a fixed rate or 2.44% where the lender allows for a 20% increase in regular payments, if you make your regular payments of 2002.43/month with no increase in your payments after 5 years your remaining amortization period would be 20 years.
By increasing your monthly payments by 20% to 2402.92/month, your remaining amortization period would be 14 years and 8 months, knocking over 5 years off your amortization period.
Even more dramatic results are seen when you make a lump sum payment yearly without increasing your monthly payments. The reason for this is the lump sum payment is applied directly to the principal of your mortgage, and as a result the amount of interest you pay each month is reduced immediately. In turn it will shorten your amortization period as well.
Using the above example you would have the option of paying up to $90,000/year in extra payments on your mortgage. By taking advantage of this option alone, you could pay off your mortgage in less than 5 years.
While being able to do this would be a dream for most homeowners and not realistic, it demonstrates the advantage of having this flexibility in your mortgage. If you would like more information contact me today so I can assist you in the mortgage process.
