The great majority of us are in mortgage contracts that contain a prepayment privilege of some sort. “Privilege” being the key word here. Not all mortgage contracts contain such privileges, but that’s a story for another day.
Those mortgages who do allow prepayment privileges, usually allow at least 15% of your mortgage to be paid down, interest and penalty free, each year. On a $300,000 mortgage, that is $45,000 that you’re able to put directly towards your principle balance. That’s more than enough for the average Canadian based on our saving habits.
But how many of you are actually taking advantage of even a portion of your prepayment privilege? For those of you who didn’t raise your hand, what are you waiting for?!
Never before has there been such a great opportunity to get ahead on the largest debt most of us will ever take on. We are paying less interest with each payment than we ever have before (just ask someone who owned a home in the ’80s). There’s never been a better time to increase your payments and begin knocking years off your amortization.
By simply adding $100 to your monthly payment on a $300,000 mortgage, you effectively reduce your amortization by almost 2.5 years!
Imagine what it would feel like to have no mortgage payments for the next two and a half years… Think of the things you could do or the savings you could accumulate in that time!
Now is the time to really chip away at our principle balance so that we can be in a financially stronger position when rates finally do begin to normalize. Odds are if you aren’t taking advantage of pre-paying your mortgage today, you likely won’t when interest costs are higher either.
Don’t wait any longer – make a lump sum payment today and enjoy the benefits tomorrow!