When it comes to financing a home in Canada, understanding the benefits of accelerated mortgage payments can go a long way toward helping you save money and pay off your mortgage faster. Accelerated mortgage payments can be a great way to cut down on the amount of interest you pay over the life of the loan and get out of debt faster.
What Are Accelerated Mortgage Payments?
Accelerated mortgage payments are when you pay more than your regular mortgage payment each month. This extra amount is applied directly to the principal balance of the loan, reducing the amount you owe. The extra payments can be made in two ways:
1. Increased Monthly Payment – You increase your monthly payment amount by a predetermined amount. This amount is applied directly to the principal balance, reducing the amount you owe.
2. Lump Sum Payment – You make a one-time lump-sum payment that is applied directly to the principal balance.
The Benefits of Accelerated Mortgage Payments
There are many benefits to making accelerated mortgage payments in Canada. Here are just a few:
1. Save Money – By making accelerated mortgage payments, you can save a substantial amount of money on interest over the life of the loan. This is because the extra payments are applied directly to the principal balance, reducing the amount of interest you owe.
2. Pay off Your Mortgage Faster – Making accelerated mortgage payments can significantly reduce the length of time it takes to pay off your mortgage. This can help you become debt-free sooner, freeing up more of your income for other financial goals.
3. Build Equity Faster – As you pay down the principal balance of your mortgage loan, you build equity in your home faster. This can be beneficial if you want to access funds for renovations or other needs.
4. Increased Flexibility – With accelerated mortgage payments, you can make extra payments when you have the funds available, allowing you to maintain more control over your finances.
How to Make Accelerated Mortgage Payments
Making accelerated mortgage payments is relatively simple. Most lenders in Canada allow you to make accelerated payments, either in the form of an increased monthly payment or a lump-sum payment.
To make an increased monthly payment, you can contact your lender and request to increase your monthly payment. The extra amount will be applied directly to the principal balance of the loan.
To make a lump-sum payment, you can contact your lender and let them know you would like to make an additional payment. The additional amount will be applied directly to the principal balance.
In some cases, you may be able to make accelerated payments through your online banking portal.
Conclusion
Making accelerated mortgage payments can be a great way to save money and pay off your mortgage faster. By paying more than the regular monthly payment, you can substantially reduce the amount of interest you pay over the life of the loan and become debt-free sooner. Understand the benefits of accelerated mortgage payments and make sure to take advantage of this money-saving opportunity.