4 Ways Hamilton Homeowners Can Reduce Mortgage Interest

Your mortgage can be one of the largest financial commitments you'll ever make.

The good news is that there are several ways to reduce the amount of interest you pay over the life of the mortgage. The important thing is understanding the terms of your particular mortgage before making extra payments or changing your payment schedule.

Here are four things worth considering.

1. Understand Your Prepayment Privileges

Before making extra payments, find out exactly what your mortgage allows.

Many closed mortgages give borrowers prepayment privileges that allow them to make additional payments without paying a penalty. These privileges can include increasing your regular payment or making lump-sum payments.

The amount you're allowed to prepay varies by mortgage and lender.

Your mortgage agreement should explain the limits and any conditions that apply. If you're unsure, ask your lender before making an additional payment.

This is particularly important if you think you may sell your home before the end of your mortgage term. Breaking a mortgage early can result in a significant prepayment penalty depending on your circumstances and mortgage contract.

2. Consider Making Lump-Sum Payments

If your mortgage permits it, putting extra money toward your principal can reduce the amount you owe and therefore the interest charged over time.

That might mean making one larger payment when you have extra funds available or taking advantage of an annual prepayment privilege.

But don't assume that putting every available dollar into your mortgage is automatically the right decision.

You should also consider your emergency savings, other debts and your overall financial situation.

The important thing is to understand what your mortgage permits and what the financial impact will be before making the payment.

3. Look at Accelerated Payment Options

Another option is increasing the frequency of your mortgage payments.

Accelerated weekly or biweekly payments result in more money being applied to the mortgage over the course of a year than a standard monthly payment schedule. FCAC notes that an accelerated schedule is roughly equivalent to making one extra monthly payment each year.

That additional principal reduction can help you pay the mortgage faster and reduce the total interest paid.

But again, the exact savings depend on your mortgage amount, interest rate, amortization and payment schedule.

4. Don't Automatically Accept Your Renewal Offer

Your mortgage renewal is an opportunity to review your options.

You don't necessarily have to stay with the same lender. Before renewing, compare the rate and terms you're being offered with other available options.

And don't look only at the interest rate.

Consider things such as:

• Prepayment privileges
• Penalties
• Payment flexibility
• Portability
• Fees
• The length of the mortgage term

If you expect to move during the next mortgage term, portability and prepayment conditions can become particularly important.

A mortgage that appears attractive because of its interest rate may not be the right fit if its other terms don't suit your plans. FCAC specifically recommends comparing options when renewing.

One More Thing to Consider

Your mortgage should fit your life—not the other way around.

Paying your mortgage down faster can be worthwhile, but it shouldn't leave you without an emergency fund or make your monthly finances unnecessarily tight.

And if you're considering moving, don't make a large financial decision based solely on the desire to reduce mortgage interest.

Your mortgage, the value of your current home, your moving plans and your next home all need to be considered together.

If you're a Hamilton homeowner thinking about selling, downsizing or buying your next home, understanding where your mortgage fits into that decision is an important part of the conversation.

Sincerely,

Mike McCarthy, MBA
REALTOR®