Extra Payments

If you are one of the lucky few who’s mortgage is coming up for renewal in the next few months, this post is for you. Let’s say for example that you will have a mortgage balance of 300K at renewal and that you have been at 2.79% for the past 5 years on a 25 year amortization. Upon renewal you are offered a fixed rate of 2.09 or a variable rate of Prime ( 2.45) less 1% or 1.45.

So 5 years ago you started at 350K at 2.79% and you have paid 1,618.88 per month, you did it with no struggle and now you have an option to renew at lower rates. For example if you take the fixed at 2.09 your monthly payment on a 20 year amortization will now be 1,529.18 or 89.70 less than what you were already paying. Now if you took the variable rate your payment would drop to 1,426.52 per month with a savings of 192.36 per month.

Now since that 1,618.88 was not a hardship, I would strongly recommend keeping your payment the same. You do this by taking advantage of the lender’s pre payment privileges. So your 20 year amortization has now shrunk by almost 3 years to 17.25 years. This is the power of the extra payments as they go directly onto your mortgage principal. This was based on taking the variable rate, and note however that those rates may change. At the end of this 5 year term your new mortgage balance will be 220K. Check out the stats below. Here is the link to the calculator.

Mortgage Summary

 Over the 20-year amortization period, you will:

• have made 207 monthly (12x per year) payments of $1,618.88 ($1,426.52 + $192.36) and one final payment of $1,397.28.
• have paid $300,000.00 in principal, $36,504.67 in interest, for a total of $336,504.67.

 Over the 5-year term, you will:

• have made 60 monthly (12x per year) payments of $1,618.88 ($1,426.52 + $192.36).
• have paid $79,541.69 in principal, $17,590.89 in interest, for a total of $97,132.58.

 At the end of your 5-year term, you will:

• have a balance of $220,458.31.

 Prepayment Savings

• By the end of the amortization period, with your monthly (12x per year) prepayment of $192.36, you save $5,859.24 in interest and pay your mortgage off 32 months sooner than if you had the same mortgage with no prepayment.
• By the end of the term, with your monthly (12x per year) prepayment of $192.36, you save $390.37 more in interest than if you had the same mortgage with no prepayment.

Today I am thankful for my cousin introducing me some new music, great conversations with new clients and seeing wildlife during the morning walk with my dog.

I look forward to hearing from you in regard to your mortgage needs.

Patrick

p.s- You can click on this link to start the process whenever you are ready. Schedule your meeting with me here.

p.s.s- I should tell you that I am licensed in Nova Scotia, Ontario(M18001555) & in British Columbia(BCFSA #504098).

p.s.s.s You can download my new mortgage app here