My name is Ryan Boughen, and I love my job as a Regina mortgage broker! I enjoy helping people that have all sorts of mortgage needs, from purchasing their next home, helping them with their mortgage renewals, or mortgage refinancing to lower their mortgage interest rate. In my latest article I share 4 ways you can reduced mortgage debt!
Finding Ways to Reduce Mortgage Debt.
According to CIBC’s 2015 yearly poll on consumer financial priorities, finding ways to reduce mortgage debt continues to be the top financial concern for Canadians.
22 per cent of those polled said debt repayment is their top financial priority for 2015, up from 16 per cent in 2014.
I realize this poll and article was published at the beginning of 2015 while everyone was making their financial resolutions, but I thought it would be a good reminder for the beginning of spring as well. I mean… is there ever a time we shouldn’t be talking about managing our finances responsibly? Anyway…
Most of the time when people hear the word “debt” they typically think of credit cards, student loans, vehicle financing, or a line of credit. Typically they aren’t that far off. In modern society “debt” has come to mean consumer debt, and being “out of debt” means that you don’t owe any money except maybe on your mortgage.
Well, even if all your credit cards and line of credits have a zero balance and you own your vehicle outright… but you have a mortgage, you still have debt.
So here are 4 ways you can reduce mortgage debt on your properties!
1. Reduce Mortgage Debt by Accelerating Your Payment Frequency
Making the change from monthly payments to accelerated bi-weekly payments is one of the easiest ways you can make a difference to the bottom line of your mortgage. Most people don’t even notice the difference.
A traditional mortgage splits the amount owing into 12 equal monthly payments. Accelerated biweekly is simply taking a regular monthly payment and dividing it in two, but instead of making 24 payments, you make 26. The extra two payments really accelerate the pay down of your mortgage.
2.Reduce Mortgage Debt by Increasing Your Mortgage Payment Amount
Unless you have a really bad “no-frills” mortgage, chances are you have the ability to increase your regular mortgage payment by 10-25%. This is a great option if you have some extra cash flow to spend in your budget.
By voluntarily increasing your mortgage payment, it’s kinda like signing up for a long term forced savings plan where equity builds in your house rather than your bank account. The extra money goes directly towards the principle repayment of your mortgage and is not a pre-payment of interest. This definitely works in your favour as it lowers the amount of interest you owe over the total time you have your mortgage.
3.Reduce Mortgage Debt by Making a Lump Sum Payment
Again, unless you have a “no-frills” mortgage, you should be able to make bulk payments to your mortgage. Depending on your lender and your mortgage product, you should be able to put down anywhere from 10-25% of the original mortgage balance. Some lenders are particular about when you can make these payments, however if you haven’t taken advantage of a lump sum payment yet this year, you will be eligible.
Are you getting a nice tax return this spring? Maybe you should consider making a lump sum payment with it this year. Or take a warm holiday next winter, it’s totally up to you! However any lump sum payment will make a huge difference in how fast you will pay off your mortgage.
4. Mortgage Refinancing is a Great Way to Reduce Mortgage Debt
Now, if debt repayment is the top financial priority for Canadians in 2015, there is obviously a reason. A lot of people have consumer debt and mortgage debt plain and simple.
If you can’t seem to get a handle on your consumer debt, but you own a property with significant equity, you should consider renegotiating your current mortgage. You might be able to access some of the equity you have built up in your property to pay off your consumer debt. This will not only improve your cashflow, but it will lower your overall cost of borrowing.
From there you could take the money you would have otherwise been paying on your consumer debt and increase your mortgage payment and take advantage of your prepayment privileges. It’s a win win… pay off your consumer debt AND start a plan to pay down your mortgage debt faster.
Let me finish with this…Not only can I help you get a mortgage, I can help you with the plan to get rid it.
Let’s work through all the numbers together and put a plan together before you go and list your property.