Happy New Year!
As with every year past, this is a time when we all make resolutions. If one of your resolutions is to become mortgage free faster, here’s a quick tip that can help with that.
Here is a simple strategy to pay off additional principal on your mortgage.
- Open an ally.ca account (or ING Direct, if you prefer, but ally.ca pays 2% interest right now, the highest available). This is a savings account that gets linked to your main bank account, but is held at a different institution. Benefit: You can’t withdraw funds very easily. It takes a day or so, this is good!
- SAVE: Once that is setup, go to the ally.ca website and setup an automatic transfer from your chequing account (at your regular bank) to the new savings account. This is the crucial part of the exercise.
- Make it an amount that you won’t notice coming out of your account ($25, $50, $100, $150, whatever you’re comfortable with.)
- Make it come out on a weekly basis, rather than monthly. (You’ll notice $100 coming out each month, but likely won’t notice $25/week) – A smaller amount more frequently is better!
- PAY DOWN: Every 3 months, transfer the money from your ally.ca account back to your chequing and write a cheque to your mortgage company. (Most mortgages have pre-payment options, USE THEM!) This is money that goes straight to paying down your principal.
- REVIEW: Every 6 months, look at your finances and see if you can increase the transfer amount. (if you didn’t notice the transfers in the first place, increase them, and accelerate paying down your mortgage.)
What’s the impact?
- Additional $6,500 off your mortgage after 5 years by just putting $25 per week aside. (That’s a Starbucks habit, by the way), PLUS $595 in interest savings (on a 3.5%, 25 year mortgage)
- Up it to $100 per week, and you’re looking at an additional $26,000 off your mortgage at the end of 5 years (not to mention the interest saved!), PLUS $2,380 in interest savings (on a 3.5%, 25 year mortgage)
Unsure of how much you can afford to put aside? (Take half of your monthly cable bill amount, half of your Tim Horton’s bill, half of your cell phone bill, add it all up, divide by 4, and start with that as a weekly amount)
Let me know how you do.
Alexx
