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Paying Down Your Mortgage

Posted by  on Apr 16, 2009
 
Homeowners with high interest rates often end up paying more interest on their home loan mortgages than the actual price of their home. For this reason, it is important to pay down your home loan mortgage as soon as possible. If you reduce the amortization period of your home loan you can save your self from paying many payments that are just interest. A lot of people are unable to pay off their mortgages over the course of their life times. A lot of lenders have conditions for prepaying your mortgage in their contracts. There are different terms for all lenders; some enable up to 20 percent paying down of the mortgage principal without penalty at any time while others make stricter regulations such as extra mortgage payments on the anniversary date of your mortgage. Be sure to study your home loan contract closely and ask your lender about options.

A locked in mortgage home loan lender can charge borrowers as much as 10 percent extra a year on the principal balance which is usually payable on the anniversary date of the mortgage or at the refinancing date of the mortgage. One tip is to pay a little extra every month on your mortgage payment. For example, if your regular mortgage payment is $737.45, add $62.55 a month into a high-interest savings account to make it an even $800. Then on the date of your mortgage anniversary, you’ll have extra money for your mortgage.

To make extra payments on your mortgage, making accelerated mortgage payments is one of the easiest methods. If you can make your mortgage payments coincide with your every other week pay check, you can make two extra payments a year. With just two monthly payments, it adds up to 24 mortgage payments a year while with every other week payments you get 26 mortgage payments in total.

In addition, you can use your income tax refunds towards paying down your mortgage. A Registered Retirement Savings Plan (RRSP) can be taken out with a maximum tax refund for you. At the time of the refund you can pay off more of your mortgage principal every year. A lump sum mortgage payment always means that the principal of your mortgage decreases, thereby shortening your amortization period and leading to fewer interest payments. Once you combine the refund with the tax-free interest earned on the RRSP over the following year, the short-term interest costs of the RRSP loan usually at prime rate will be outpaced.

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