Managing the mortgage

Managing the mortgage

January/February for me is the start of a new financial year. Every year around this time my sweetie and I reflect on our success (&challenges) with last year’s spending plan, and create a new one for the upcoming year. We examine our net worth statement to see how much progress we’ve made on increasing that number.  We receive our T4 slips and complete a preliminary tax return, so we can include the tax refund in our plan for this year.

Each year, when we create our spending plan, we look for an opportunity to accelerate our mortgage.  Every financial expert I know advises that paying off the mortgage as quickly as you can is part of a sound financial strategy.  And, since we are “late bloomers” financially speaking, we need to focus on paying the house off before we retire so we are not carrying a mortgage payment on our pension income.

Our house was purchased in 2003 with a 26% down payment.  We make weekly payments, which helps pay off the mortgage faster. Just by paying weekly, we shortened our 25 year mortgage by 5 years so it would pay out in 2023 instead of 2028.

According to the terms of the mortgage, we are allowed to increase our weekly payments by 25% of the initial mortgage payment every year on or after the anniversary date. That increase goes straight on the principle of the mortgage. So for the past few years, we have been adjusting our spending plan so that we can increase our weekly payments by 25%, which for us works out to just under $40.00. We have had to make adjustments to our lifestyle to manage this. However, after some initial discomfort we really have not missed the money. We adjusted, cutting a bit from each spending category. We were lucky enough to receive small pay raises so some of the discomfort was offset by the raise.

This year, we got out the calculator to see how we will benefit by this strategy.

We based our calculations on our current mortgage interest rate- which is high by today’s standards.

By increasing our payments by 25% we will pay off our mortgage in 2015 instead of 2023.

We will save ourselves $21,633.00 in interest charges and pay off the mortgage almost 8 years early.  For us, that means we can retire mortgage free, which is one of our goals. Talk about motivation!

By combining the ability to make weekly payments with the opportunity to increase our payments by 25%, we hit on a strategy that fulfills our particular needs and circumstances.

This strategy may or may not work for you. It depends on the size of your mortgage, your income, your age etc. Stay tuned for some other strategies that may be more in line with your own particular circumstances, yet with the same goal in mind. A fully paid for mortgage in the least amount of time with the least amount of interest.

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