With a mortgage paid off in full, more money can be allocated to other priorities, such as --
- Helping children through school
- Buying a vacation property
- Upgrading/improving existing home
- Going back to school
The chart below illustrates a typical mortgage repayment scenario for a $100,000 mortgage with monthly payments, an amortization period of 25 years and an annual interest rate at 6% over the five-year term.
You'll notice that over a five-year term, with monthly payments of $639.81, the cost of borrowing $100,000 is actually $28,219.33. After five years, the outstanding principal amount would be $89,830.73. If you want to reduce this amount as much as possible, consider using any or all of the following strategies.
Strategy #1: Increase the frequency of payments
In the example above, the mortgage is paid on a monthly basis. However, you can arrange to switch your payments to half of the monthly payment amount on a biweekly basis, or even to a quarter of the monthly amount on a weekly basis.
The same mortgage with biweekly payments:
|Outstanding principal amount||$85,950.54|
The same mortgage with weekly payments:
|Outstanding principal amount||$85,921.62|
As you can see, simply taking advantage of biweekly or weekly payment options can reduce the cost of owning your home and help you to pay off your mortgage much faster.
Strategy #2: Take advantage of increased payment options
TD Canada Trust customers can increase their payments by up to 100% of their regular payment amount at any time throughout the term of the mortgage. By simply increasing your mortgage payment by 10%, you can significantly reduce your overall costs and own your home faster.
The same mortgage with monthly payments increased by 10% to $703.79:
|Outstanding principal amount||$85,374.71|
Strategy #3: Take advantage of lump-sum payments
In addition to increased payment options, most banks offer the opportunity to make lump-sum payments on your mortgage.TD Canada Trust mortgage holders can make lump-sum payments of up to 15% of the original borrowed amount each year. This first chart shows the effect of making a 2% lump-sum payment at the beginning of each calendar year of your mortgage. The results are impressive, to say the least.
The same mortgage with 2% lump-sum payments each year:
|Annual lump-sum payment||$2,000|
|Outstanding principal amount||$78,536.25|
Note: You can still make lump-sum payments greater than 15%, but there will be a compensation amount that will be due. For more information, click on compensation amounts.
Do it all!
Now, imagine that you were able to take advantage of the three strategies above all at the same time. Here is what your mortgage repayment schedule would look like if you --
- Switched to weekly payments (no cost to you)
- Increased your payments by just 10% (to $175.95/week), and
- Made lump-sum payments of just 2% ($2,000/year) at the beginning of each calendar year of your mortgage
|Outstanding principal amount||$69,804.05|
Strategy #4: Choose a shorter amortization period
You have the option of choosing the amortization period when you take out a residential mortgage atTD Canada Trust. Most mortgages are automatically amortized over a 25-year period, meaning that's how long it will take for your combination of principal and interest payments to eliminate the principal balance on your mortgage. However, you can select a shorter amortization period at the beginning of your mortgage and dramatically reduce the amount of interest you pay over the shortened life of your mortgage.
On the same $100,000 mortgage at 6% interest, here's how much money you could save by simply opting for a reduced amortization period:
Instead of 25 years, choose:
|Amortization Period||Payment Amount
|Interest Cost||Interest Savings|
Portability - Take your mortgage with you when you move
Selling your home? You may be able to take advantage of your existing mortgage, especially if current rates are considerably higher than your rate. Portability Plus is an option available for TD Canada Trust customers that allows you to --
- Take your existing mortgage with you when you buy a new home; if you like, you can increase your loan amount and blend your existing rate with the current market rate for the new funds
- Sell your home and let the new purchaser assume your mortgage; this can be a good selling feauture if your existing rate is considerably lower than what is currently available in the market
Low-cost Mortgage Critical Illness and Life Insurance
Chances are, buying a home is the largest investment you will ever make. Your home can be protected with Mortgage Critical Illness and Life Insurance. With this program, the outstanding mortgage balance can be paid if the insured borrower(s) dies, has a terminal illness, suffers an accident, or is diagnosed with a Critical Illness.