Paying Down Your Mortgage!

taken from Real Estate Weekly, May 19, 2004 --Paying down your mortgage doesn't have to be complicated. In fact, it basically boils down to two options: •   You can increase your payment amount -- up to 100% of the original payment over the term of your mortgage. •   You can make a lump sum prepayment of up to 10% of your mortgage amount once every calendar year. How can you take advantage of those options? It's probably easier than you think. CIBC has several ways to help you shave years off your amortization period, and save big on interest. INCREASED PAYMENT OPTIONS Top up your payments when you first arrange your mortgage Let's say you're arranging your mortgage and the regular payment is going to be $662. Topping it up to an even $700 can make a big difference! That extra $38 per payment is applied directly to your principal, which reduces the total interest paid by over $22,955 and reduces the amortization period from 25 to 21 years. Quite a significant saving for only $38 per month! Increase your regular payment amount during the term At any time during your mortgage term, you can increase your regular payment by any amount up to 100% of the originally contracted payment. All of the increase is applied to the principal, which adds up to big savings in total interest paid and a reduced amortization period. It's something to think about when that big salary increase finally happens. Take advantage of accelerated payments "Acceleration" means paying down your principal faster without having to make more frequent payments. This has to do with the way the payments are calculated over the course of your mortgage. Here's an example to demonstrate how it works: Let's say you currently have a mortgage with monthly payments of $662.38 amortized over 25 years. Your first year's worth of mortgage payments would add up to $7,948.56       $662.38        x    12     $7,948.56 Now calculate the same payment amount, as if you were going to pay it weekly. Divide by 4 (because there are 4 weeks in a month) then multiply by 52 (because there are 52 weeks in a year). Your first year's worth of mortgage payments would add up to $8,611.20. $662.38/4=   $165.60                         x    52                    $8,611.20 To maintain your monthly payment frequency, simply divide this new yearly figure by 12 for an accelerated monthly payment of $717.60. It works out to just $55.22 more than your original non-accelerated payment, but it reduces your amortization by 5.50 years and saves you over $30,500 in interest. LUMP SUM PAYMENTS OPTIONS Make a lump sum annual prepayment Once every calendar year, you can make a lump sum prepayment on principal, up to 10% of your original mortgage amount. That means on an $80,000, 5-year mortgage, you could pre-pay $8,000 every year for 5 years. Your total prepayment of $40,000 provides enormous interest saving of $87,575 and you'll become mortgage-free in only 8.92 years. Prepay as much as you can at renewal All CIBC mortgages become fully open at renewal, so at that time you can apply any lump sum amount to pay down the balance. Even a small lump sum can add up to big savings. Paying down your other debts All CIBC credit options (excluding closed mortgages) are OPEN. This means you can pay any amount over and above your regular payment amount, on any payment date without penalty. HOW INCOME TAX AND RRSP'S CAN HELP When you open a CIBC Regular Investment Plan, you can apply to reduce the amount of income tax withheld from your pay cheque. The result: you can save for the future while increasing your take-home pay to top up your mortgage payments or pay down your other debts. This Tax Waiver Program can help you manage your money more effectively. Your CIBC Personal Banker can help you with the Revenue Canada application. Once approved, you'll have more of your money working for you every pay cheque. Where can you lump sum come from? Apply your income tax refund directly to your mortgage or consider using a Personal Line of Credit to make your lump sum payment -- it may be worth your while in the long run. Even a small lump sum adds up to big mortgage savings. If you want to talk to a real estate professional Realtor®, be sure to call one of our HomeLife Real Estate Professionals TODAY!

 

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from Dana, Hanna, Joanna & Barb!
Real Estate Specialists
HomeLife Real Estate Professionals Ltd.

#200, 12907 - 97 Street

Edmonton, AB  T5E 4C2

Phone: (780) 457-5100
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Dana Wloka, Broker
Hanna Drozdowski, Agent
Joanna Wloka, Agent
Barbara Grodaes, Agent