Do you feel like you are a slave to your mortgage? With homes in Toronto being sold for up to 195% of the asking price feeling like you are a slave to your mortgage is a reality for some homeowners. BMO Economics released a home-buying report earlier this year and they found that bidding wars are at their worst in Toronto. An astounding 44 per cent of participants admitted they would get into a multiple-bidding situation in an effort to find a house. After homeowners have been suckered into paying too much, how can possibly they afford it?
6 Ways to Burn Your Mortgage
It’s time to get serious about burning your mortgage. By burning your mortgage a homeowner may have more wiggle room for retirement savings, or (gasp) may actually have a life beyond working to pay down the mortgage. Here are six tips to burn that mortgage.
1% in your pocket is better than 1% in the taxman’s pocket
Getting a tax refund is great — heck it is fabulous. Instead of rolling that refund into a relatively low savings vehicle — that you will eventually be taxed on — accelerate your mortgage payments. Chances are the interest earned on your savings pales in comparison to the amount of interest you are paying on your mortgage.
Embrace sneaky forms of budgeting
Increasing your mortgage payments is kind of like giving yourself an extra bonus. Make this easy by aligning your pay period with your mortgage payments. Think of this as a sneaky and smart form of budgeting.
Stay close to your mortgage
“Develop a close relationship with your advisor and together monitor what the market is doing,” advises Bill Whyte, chief member services officer at Meridian Credit Union. Meridian has a 20/20 prepayment privilege on fixed mortgages, which provides members the opportunity to pay up to 20% of the original principal balance without notice or bonus. “Pay attention and take advantage of opportunities to blend and extend to get a lower rate.” Don’t be afraid to negotiate. Sometimes a better rate is out there, so breaking your mortgage can be beneficial in the long run.
RRSP vs. mortgage
Ideally you should be doing both. However, if you are feeling the squeeze, like many 20 and 30 somethings, you cannot do both. Considering that your biggest asset is your house you will want to pay off that loan first. Ask yourself this question: Whom do I want to pay, the bank or myself? As time goes by you’ll build equity, which can eventually be used for other things. Just be sure to ramp up your retirement savings as soon as you can.
Rent and repeat
Is there something in your home that you can make money from? If you answered yes, rent it. If you own a condo and have an unused locker or parking spot you can draw income from it. If you own a house and are fortunate enough to have a driveway or unused shed, rent that too. The money you earn from renting can be directed towards paying down your mortgage.
Insure for what matters most
Mortgage insurance, in most cases, is a must. However, you don’t need every type of insurance coverage under the sun. Be sure to shop around for the best policy. Your bank may not be the only option out there, as there are some private policies that could prove to be less expensive and allow you to control who will be the beneficiary in case of death.
What are you doing right now to burn your mortgage? Do you have any tips to share?