Increasing my mortgage payments
One of my August goals was to increase my accelerated bi-weekly mortgage payments to the 20% prepayment maximum. Well, I never got around to it, but earlier this week I was reminded of it by @RateSupermarket who tweeted about 3 easy ways to save $65,541 on your mortgage.
So I finally stopped being lazy, and called to speak to someone at Vancity.
My minimum mortgage payments are $1,098/month ($13,176/year).
When I signed my mortgage paperwork back in May, I agreed to a 10% increase to $600/accelerated bi-weekly ($15,600/year).
Now, my mortgage payments will be approximately $660/accelerated bi-weekly ($17,160/year).
You can see from the chart below what a difference the 20% prepayment can make to my mortgage amortization (30 year amortization, current 5-year fixed term at 3.74%). Granted, after this current 5-year term is up, when I go to refinance, who knows what kind of interest rate I’ll end up getting.
The dark blue represents accelerated bi-weekly payments without any additional prepayment option. You can tell that already cuts my mortgage down by 4 years. And then when you add in the accelerated bi-weekly payments with the 20% prepayment (orange), you can see that it knocks my mortgage down even further, to 19 years.
This new payment amount of $660/bi-weekly ($17,160/year) represents approximately 21% of my gross annual income, and it’s an amount that I’m comfortable with for the time being. I also hope to keep saving money into my House Fund, so that by the time next spring rolls around, I will have enough saved up not only for my property taxes, but to also put down a lump sum towards the mortgage principle when my anniversary date comes.
If anything should happen, and I can no longer afford $660/bi-weekly, I can always drop my payments down to the original amount. As long as I’m satisfying my obligation of $1,098/month, and not going above 20%, then the bank is fine with whatever I choose to do.
**NOTE: For those who are new to my blog, please know that along with my FT job, I also am a freelance write & blogger. I choose to work about 65 hours/week (see my freelancing schedule) in order to be able to afford to save, pay down my mortgage, and travel often. I worked hard to get out of debt, and I’m working just as hard now to reach all of my personal finance goals. If you check out my freelancing schedule, or stick around to read more of my blog, you can see that even though I’m busy, I make sure to have a good balance in my life. :)
Author: Krystal Yee
I’m a writer, personal finance blogger, and marketing professional based in Vancouver. I’m a former Toronto Star (Moneyville) columnist, author of The Beginner’s Guide to Saving and Investing, and co-founder of the Canadian Personal Finance Conference. When I’m not working, you can usually find me running, playing field hockey, or plotting my next adventure.