Written by DLC agent Ryan Oake

Do you know what kind of prepayment privileges you currently have with your mortgage? Does your current lender allow you to make a 10% prepayment or a 20% prepayment on your principle amount? Can you double your monthly payment? Or can you even increase the amount you are paying monthly?

This is important information, and the following break down is going to show you why making a prepayment on your mortgage may just be the best holiday gift you can get yourself this season!

Mortgage Structure
Mortgage Amount: $400,000
Term: 60 months (5 years)
Interest rate: 3.19%
Payment: $1,932.19/month

After 5 years of monthly payments…

Interest paid: $59,068.97
Principal paid: $56,862.43
Balance outstanding: $343,137.57
Amortization remaining: 20 years

After 5 years of monthly payments with double-up payments twice yearly…

Interest paid: $57,621.44
Principal paid: $77,631.86
Balance outstanding: 322,368.14
Amortization remaining: 20 years
Effective amortization: 15 years 1 month
Interest saved over term: $1,447.53

Let us break this down. If you double your monthly payment of $1,932.19 twice a year, for the term of your mortgage (5 years in this case), you will save $1,447.53 in interest over those 5 years. Not too bad. But there is more…

If you did these double-ups twice a year for 5 years, and refinanced your mortgage after the 5 years but continued paying the higher payment of $1,932.19 instead of what the new monthly payments would be ($1,557.19), that extra $375 a month goes directly to the principal amount owing and takes 4 years and 11 months off of your amortization…

If that doesn’t excite you and you decided instead to continue making double-up payments for the remainder of the amortization, you would save $38,550.70 in interest…

So this holiday season, when you get your year-end bonus or are deciding how much to spend on loved ones, maybe first consider allowing yourself a mortgage prepayment or two because it could save you years of payments and potentially thousands of dollars in interest! If you have any questions, contact a Dominion Lending Centres mortgage professional near you.