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Consider raising your mortgage payments!

Interest rates went up a couple of weeks ago and since I am on a variable rate term, my payment went up slightly. I prefer that over and amortization adjustment. The main reason is that it allows me to keep up with my target goal of paying my mortgage faster. At the time, my amortization was 14 years and 5 months and one of my goals is to be done in 10 years. It’s a challenging goal but achievable.

My mortgage history

I purchased our house 4 years ago and reseted my mortgage to a 25 year term. By doing a few things, I managed to only have 14 years and 5 months remaining on my term at the beginning of the month:
  • Make bi-weekly payments, or weekly if you can. It saves nearly 4 years up front.
  • Manage your interest rates. Always run the numbers. Evaluate the cost of breaking your current term for a lower rate.

What can you do after a prime rate increase?

With my payments going up by 16$ due to the increase in rates by the Bank of Canada, I took the time to evaluate how much more I could afford to pay and what my savings would be. I pulled out the amortization calculator provided by my bank and plugged in numbers. It helps that our regular annual pay raise (to keep with inflation) happened at nearly the same time. It means I had some little extra cash to work with.

Scenario Evaluation

  • I started by rounding up the increase of 16$ and some cents to 25$ and that brought my amortization down to 14 years and 1 month. A saving of 4 months.
  • I looked at what an increased of 25$ would do on top of the previous increase and that brought the amortization to 13 years and 8 months. An extra saving of 5 months over the previous.
For a total increase of 50$, I was saving 9 months in amortization on my mortgage. The amount going towards my principal was effectively 34$ since 16$ came from the increase in interest rate.

Have you ever increased your payments?


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One Response to "Consider raising your mortgage payments!"

  1. Jerome says:

    I like your way of working. I have no mortgage but I used to use same principle for my pension-savings. Every time I had a raise, I would put most of the raise towards the pension-pot by adjusting my automatic payment plan. And when a revision of the tax-law meant that we had a bit more money in our pocket, I did the same. Without ever really noticing it, we managed to build up a very nice nest-egg.

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