(NC)-For many Canadians, paying down their mortgage is the first step toward fulfilling dreams of early retirement, debt-free living and having more cash for other pursuits. It doesn't have to be a dream. An easy–and often overlooked-way is to prepay your mortgage.
Source: NewsCanada
Prepaying a mortgage simply means making additional whole or partial mortgage payments to your lender. Traditional mortgages apply a greater percentage of early payments towards interest charges than to the principal. By making extra payments, you reduce the principal balance and build equity faster than if you kept the original schedule.
If you're thinking of prepaying, keep in mind the following three points:
• Think about where the prepayment money comes from. Conventional mortgages won't allow access to the prepayment money to replace a furnace, cover a child's education or pay for a vacation.
• Know the extra payment rules and penalties. Will the savings earned exceed the penalty paid?
• You have to make regular payments. Even if you double your payments for 12 consecutive months, you still have to send in your regular payment the next month.
An ideal mortgage allows you to use your entire paycheque as a "prepayment."
You then take back what's needed to pay your day-to-day bills and special expenses penalty-free, leaving unspent funds applied to your mortgage. Since your whole income is deposited on a regular basis, you don't have to worry about missing a payment, and since you're prepaying, even if only by $50 or $100 each month, your principal decreases, as do your interest payments.
There is a mortgage product that works like this. Manulife Bank's Manulife One is a flexible mortgage that combines the homeowner's mortgage, loans, and chequing and savings accounts. To find out how much you could save with a Manulife One mortgage, visit the Manulife One web site at manulifeone.ca/research and try their interactive demo, or call
1-877-765-2265, to see how prepaying could shave years off our mortgage.
- News Canada
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