It is generally believed that if you pay off your mortgage before the end of the term, you can save money on account of payment of interest. There are different ways by which this can be done. But you have to first go through the Mortgage Agreement to find out the options available to you. In conventional mortgage, the bank usually puts a clause regarding prepayment whereby you have to pay interest for prepayment. So, you have to work within the framework of the agreement.
There are different ways by which you can minimize the period of mortgage and save money. The options are:
- You can pay more than the agreed amount as monthly installments. The amount of increase depends on the terms of the agreement. Even with a small increase in the monthly installment, you can save a lot of money in payment of interest as the balance of loan goes down more than in the original mortgage plan. But before you opt for the increase in the amount of the installment,it is important to verify with mortgage institution whether you will be able to go backto the original payment terms rather than the increased payment option.
- You can make a lump sum payment to reduce the amount of the loan. This is possible if you receive a lump sum as bonus or from any other source. As the loan amount goes down, automatically the interest on the principal goes down. But the amount which can be paid to as lump sum, the time when it can be reduced, etc., depends on the conditions incorporated in the mortgage document. Before taking recourse in any of the options, you should go through the mortgage documents thoroughly as there are clauses where prepayment, in any form, may attract penal interest.
- At the time of the renewal of your mortgage, if the rate of interest has come down, the monthly installment would come down. But if you decide to continue to pay the same amount of installment as you were paying, then automatically you can reduce the amortization of the mortgage loan.
- When you have taken a conventional mortgage, you get 80% of your purchase price as loan. As the loan amount becomes high, it is always better to go for accelerated mortgage payments as accelerated bi -weekly payments can reduce years of amortization of mortgage loan.
From the above, you can see the benefit of reducing the interest burden on your mortgage loan. To get the correct idea about the exact savings due to these process or processes, you can visit our site Ratetrade.ca and refer to our mortgage payment frequency calculator where different rate calculators under different amounts and circumstances for getting authentic information.