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MORTGAGE PREPAYMENT(S)- THE PERFECT HOLIDAY GIFT!
December 20, 2018 | Posted by: Lam Lee
Do you know what kind of prepayment privileges you currently have with your mortgage? Does your current lender allow you to make a 10% prepayment or a 20% prepayment on your
This is important information, and the following break down is going to show you why making a prepayment on your mortgage may just be the best holiday gift you can get yourself this season!
Mortgage Structure
Mortgage Amount: $400,000
Term: 60 months (5 years)
Interest rate: 3.19%
Payment: $1,932.19/month
After 5 years of monthly payments…
Interest paid: $59,068.97
Principal paid: $56,862.43
Balance outstanding: $343,137.57
Amortization remaining: 20 years
After 5 years of monthly payments with double-up payments twice yearly…
Interest paid: $57,621.44
Principal paid: $77,631.86
Balance outstanding: 322,368.14
Amortization remaining: 20 years
Effective amortization: 15 years 1 month
Interest saved over term: $1,447.53
Let us break this down. If you double your monthly payment of $1,932.19 twice a year, for the term of your mortgage (5 years in this case), you will save $1,447.53 in interest over those 5 years. Not too bad. But there is more…
If you did these double-ups twice a year for 5 years, and refinanced your mortgage after the 5 years but continued paying the higher payment of $1,932.19 instead of what the new monthly payments would be ($1,557.19), that extra $375 a month goes directly to the principal amount owing and takes 4 years and 11 months off of your amortization…
If that doesn’t excite you and you decided instead to continue making double-up payments for the remainder of the amortization, you would save $38,550.70 in interest…
So this holiday season, when you get your year-end bonus or are deciding how much to spend on loved ones, maybe first consider allowing yourself a mortgage prepayment or two because it could save you years of payments and potentially thousands of dollars in interest! If you have any questions, contact a Dominion Lending Centres mortgage professional near you.
