As a homeowner in Toronto, you have several options to make the most of your mortgage. One of the best ways to do this is by taking advantage of pre-payment privileges.
What Are Mortgage Pre-payment Privileges?
Pre-payment privileges allow you to make extra payments on your mortgage without penalty. This means that you can pay off your mortgage faster and save on interest.
- For example, let’s say you have a $500,000 mortgage with an interest rate of 2.5%. Over a 25-year term, you would pay $386,512 in interest. However, if you were to use pre-payment privileges to make an extra $50,000 payment, you would save $26,639 in interest and pay off your mortgage 3 years and 4 months earlier.
What Are Bi-weekly or Accelerated Mortgage Payments?
Another way to use pre-payment privileges is through bi-weekly or accelerated payments. This means that instead of making one monthly payment, you make half of your payment every two weeks. This results in an extra payment per year, which can significantly reduce the amount of interest you pay and shorten the length of your mortgage term.
Are Their Mortgage Pre-Payments Without Penalty?
In Canada, the mortgage rules are determined by the federal government, and all lenders must abide by them. Under these rules, borrowers can increase their mortgage payments by up to 20% annually without penalty.
It’s important to note that not all mortgages have pre-payment privileges. Some lenders may charge a fee for this option. It’s also important to make sure that the extra payments you make go towards paying down the principal of your mortgage, rather than just covering the interest.
It’s also important to consider the long-term financial implications of making extra payments on your mortgage. While it can save you money in the long run, it may not always be the best decision for your current financial situation. It’s important to speak with a financial advisor to determine what’s best for you.
In conclusion, pre-payment privileges can be a powerful tool for homeowners in Toronto. By using them to make extra payments on your mortgage, you can save on interest and pay off your mortgage faster.
Keep in mind that not all mortgages have pre-payment privileges and it’s important to speak with a financial advisor to determine what’s best for you. With the right strategy, you can make the most of your mortgage and achieve your financial goals.
