Accelerating the repayment of your mortgage is a delicate issue. While this often saves thousands of dollars in interest costs and shortens the loan term, doing so is only beneficial under certain conditions.
When is it not advantageous to repay your loan quickly?
Experts believe that, in most cases, paying off your mortgage before term is not a great idea. Here are a few situations that illustrate why:
A payment strategy for certain homeowners:
Financial advisors recommend that homeowners repay their mortgage more quickly if the following financial conditions are met:
If these conditions are met, homeowners have several options for paying off their loan, such as an increase in frequency of payments, or prepayments.
Acceleration of payment frequency
Whether monthly, bi-weekly or weekly, the timing of payments also impacts the spread of mortgage payments. Paying $500 every two weeks, instead of $1,000 a month, totals 26 payments per year, which is an additional monthly payment.
Early repayments
Tax refunds, inheritance, or annual premiums are forms of income that can be used toward the repayment of the loan. Most mortgage agreements offer the option of making additional payments each year, but under certain conditions. These are negotiated at the time of signing the contract, and the sum is generally limited to 10% of the initial amount of the loan, without compensation.
Additional payments
At each payment, an additional payment may be made, provided the amount is equal to or less than the regular payment (taking into account principal and interest).
If you want to free up your mortgage payments earlier, it’s important to know about these different options. That being said, in order to choose the best solution for your needs and financial success, meeting with a bank advisor is highly recommended.
