In Canada, the two main accelerated mortgage payment frequencies are accelerated bi-weekly and accelerated weekly. This means that increasing it will permanently affect your future payments, and it might not be possible to decrease it in the future. Some lenders might only allow you to increase your regular mortgage payment amount. Instead, it will still be $1,500, unless you decide to make another extra payment. For example, if you double up your RBC mortgage payment from $1,500 to $3,000, you’re not required to make a $3,000 mortgage payment the next month. In most cases, the “increase your mortgage” feature does not affect your original mortgage payment amount. Going over this limit will cause mortgage penalties to apply. You can, however, make a one-time prepayment by using your annual 10% prepayment allowance. You can’t make an extra mortgage payment of over $1,500 in a given month, even if you didn’t make an extra payment the previous month. In other words, if your monthly mortgage payment is $1,500 with RBC, then you can make an extra payment of between $100 to $1,500 every month. You can also "Double Up" your regular mortgage payment, which allows you to prepay between $100 up to your regular mortgage payment amount, with this amount going directly against your mortgage's principal balance. For example, RBC allows you to make extra payments, as a mortgage prepayment, equal to 10% of your original mortgage principal amount every year. However, if it fits within your budget, paying extra toward your principal can be a great way to lessen the time it takes to repay your loans and the amount of interest you’ll pay.Not all lenders allow you to make extra mortgage payments, and they may also limit the amount of extra payments that you can make each year. Making your normal monthly payments will pay down, or amortize, your loan. Paying a little extra towards your mortgage can go a long way Using the same example as above, if you make a payment of $477.50 every 2 weeks, instead of 1 monthly payment of $955, you could shorten your total loan term by more than 4 years and reduce the interest paid by more than $22,000. Be sure to first check with your lender if this is an option for your loan. This extra payment may be applied directly to your principal balance. When you split your payments like this, you’re making the equivalent of 1 extra monthly payment a year (26 bi-weekly payments totals 13 monthly payments). If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.Īnother way to pay down your mortgage in less time is to make half-monthly payments every 2 weeks, instead of 1 full monthly payment. If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you make your regular payments, your monthly mortgage principal and interest payment will be $955 for the life of the loan, for a total of $343,739 (of which $143,739 is interest). Let’s say you have a 30-year fixed-rate mortgage for $200,000, with an interest rate of 4%. Here are a few example scenarios with some estimated results for additional payments. Even small additional principal payments can help. Because interest is calculated against the principal balance, paying down the principal in less time on your mortgage reduces the interest you’ll pay. When you make an extra payment or a payment that's larger than the required payment, you can designate that the extra funds be applied to principal. This reduction of debt over time is amortization. Assuming regular payments, more of each following payment pays down your principal. Typically, the majority of each payment at the beginning of the loan term pays for interest and a smaller amount pays down the principal balance. For example, if you make a monthly mortgage payment, a portion of that payment covers interest and a portion pays down your principal. Mortgage amortization is the reduction of debt by regular payments of principal and interest over a period of time. Do you have a 15- or 30-year fixed-rate loan that you’d like to pay down faster? You might find that making extra payments on your mortgage can help you repay your loan more quickly, and with less interest than making payments according to loan's original payment terms.
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