If you want to reduce your interest costs, a great way is to concentrate on paying down your mortgage more quickly. Above and beyond making your regular mortgage payments, here are some things you can do to pay down your mortgage quickly:
Double up your payments. Most lenders offer the option to double up your mortgage payments as often as you like. That way if you have some extra cash, you can pop it onto your mortgage. Your lender may even give you flexibility with this option, allowing you to add an extra $100 to your payments from time to time as you see fit. I like this option better than permanently increasing your payment because then the ball is in your court – you can pay more when you can afford to.
Take advantage of the lump sum option. Usually lenders will let you put down 10% of your original mortgage amount each year in the form of a lump sum. Some lenders allow this only once per year while others allow you to make part of the lump sum more than once per year, allowing you to make a portion of your lump sum while still saving for the rest. Either way, using this option allows you to enjoy significant savings – the more you pay down, the less interest you will pay.
Increase your regular mortgage payments. For some people this is another great option but I would recommend this only for people who have done the math thoroughly and have determined that they can afford to increase their mortgage payments permanently. Remember, this is permanent, unlike doubling up your payments, so be sure the increase is very affordable for your lifestyle and income.
Take the accelerated option. When you first sit down with your lender and discuss the possibilities for a mortgage, tell them you would like the accelerated option, if they offer that. By going with the accelerated option, it means you effectively are paying one extra payment per year, That might not sound like much, but it does have an effect on your amortization – the length of your mortgage – and it is more than worth it to ask for this option.
These tips are for you if you have a closed mortgage. If your mortgage is open it means that you can pay down your mortgage as much as you like without any penalties. Each lender will have different rules so it’s important that you find out what rules apply to your mortgage. Be sure to take advantage of any options available in order to reduce your interest costs over the long term.