Canadian Mortgage Payoff Goal Calculator
If you’re a Canadian homeowner, this calculator can help you compute how much quicker your mortgage could be paid off if you were to add a specific amount of money to your monthly payment. First enter the principal balance owed, the current annual interest rate, and your current monthly payment amount (please only the principal and interest portion of the payment). Finish up by indicating how many years you would like to pay off your mortgage in.
Click on CALCULATE and you’ll see the amount of money you would need to add to your current monthly payment to have your home paid off in your desired timeframe. To top it all off, you’ll discover just how much money you’ll save in interest.
Tips to Quickly Pay Off Your Canadian Mortgage
The vast majority of Canadian household debt, or 70 percent, is comprised of residential mortgage debt, according to the Canadian Bankers Association. Although this indicates a fiscally responsible nation, since purchasing a home can dramatically increase personal capital and serve as a wise financial decision despite incurring the mortgage debt, Canadian homeowners are still laboring under hefty mortgage payments that can stretch all the way to retirement. With a little thoughtfulness and planning, though, you could pay off your mortgage a little sooner, saving you tens of thousands of dollars. Here are a few tips to quickly pay off your Canadian mortgage.
Make Accelerated Biweekly Payments
Most payment plans will presume a 12-month plan, which includes monthly payments 12 times per year. Experts recommend rethinking that option. Request or research an accelerated biweekly option which requires 26 payments per year at half the cost of the 12-payment plan. The result is that you'll contributing the equivalent of 13 months' payment toward the mortgage. This equals an extra month's worth of payment each year, saving you interest and chipping away at the principal. Ensure that you opt not for a biweekly plan, but instead for an accelerated one that forces you to make 26 payments per year.
To illustrate, let's say you have a $250,000 mortgage amortized over 25 years with an interest rate of 3 percent and a monthly payment of $1,247. With a biweekly plan, you pay $623.50 every two weeks. You'll save over $16,300 in interest over the 25 years, and you'll pay it off in a little more than 22 years.
Use Taxes for Your Own Ends
Taxes are two-faced and have one good side and one bad side. On the bad side, Canadians are increasingly aware that, unlike their neighbors to the south, Canadian mortgage payments are not tax-deductible. In other words, homeowners don't receive a tax deduction for each mortgage interest payment, which would certainly incentivize paying down that mortgage.
Surprisingly, taxes can help, which brings us to the good side of the taxes coin. Put your tax refund directly towards the mortgage. Most closed mortgages allow you to make one lump-sum payment, up to 10 percent, 15 percent or 20 percent of the original principal, per calendar year, without penalty. Many also allow you to pay it directly towards the principal.
As an example, again assume you have a $250,000 mortgage. If you pay your tax refund of $1,600, which the National Post reports as the average refund, toward the mortgage each year, you'll pay it off three and a half years early and save $20,000 in interest. Of course, using other found money, such as security deposits, insurance payments, utility refunds, birthday checks, or bonuses at work as lump payments is also an option.
If you take this track, you're in good company. A 2013 Canadian Association of Accredited Mortgage Professionals (CAAMP) study discovered that 17 percent of Canadian mortgage holders have made an additional lump sum payment in the last year.
No one wants to revisit a mortgage every hour. Once you have automatic payments slipping out of your account biweekly, you might be tempted to push the mortgage off your radar. It's vital to keep at least minimally informed about the status of your mortgage, though. There may be better interest rates or new mortgage options of which you can take advantage.
To illustrate, if you are in a fixed five-year term with your bank but find a significantly lower interest rate at the bank down the road, you might save thousands by switching to the lower interest even after paying the penalty.
Don't Lower Your Payment Amount
Even if you find a significantly lower interest rate at another bank and jump at the opportunity, consider keeping your payments at the same amount. The original amount is already in your budget so you won't have to adjust your spending, but you will see dramatic returns.
Let's say that you have a $250,000 five-year fixed mortgage with an interest rate of 5 percent. The five years come, and your bank offers an interest drop to 2.99 percent for another five-year fixed mortgage. If you accept, your monthly payments will drop from $1,454 to $1,224. Don't start waltzing on the tables yet, though. If you take the lower interest but continue with your accustomed $1,454 payments, you chop four years off your mortgage and save $15,700 in interest payments. Now that's something to dance about.
House mortgages can be overwhelming, but with a little research and planning you can pay it off more quickly than predicted and save yourself thousands while enjoying your beautiful new home.
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