The 2 things you can do to lower your monthly mortgage payments

It’s no surprise that the monthly costs of owning a home can definitely add up. But, if you’re looking to lower your monthly mortgage payments, you’ll be happy to know there can be some relief. 

While your mortgage payments are generally fixed and can be difficult to adjust, it’s not impossible. It’s always best to speak with your advisor to make sure you’re getting the best advice for your unique situation, these are a few ways monthly mortgage payments can be lowered to help manage overall expenses.

Make lump sum payments or prepayments

If by any chance you happen to come across some extra cash–whether those funds come from bonus payments, GST payments, gifts, inheritance, or additional sources of income–you can also consider making a lump sum payment toward your mortgage, in addition to your regular monthly payment. 

Lump sum payments go straight to your principal, which means they can help in paying your mortgage off faster. With lump sum payments, you may be able to maintain a smaller mortgage payment and pay your mortgage off when you initially expected to, or at least closer to that timing. Just double check to see if you’ll have to pay any prepayment penalties.

But before you go ahead and make this decision, there are a few things to consider:

Prepayment penalties: Just double check to see if you’ll have to pay any prepayment penalties. Some mortgage agreements contain clauses that charge fees if you pay off a certain percentage of the mortgage ahead of schedule. It's wise to consult with your lender or read through your mortgage agreement to understand any potential penalties.

Financial cushion: Ensure that you have enough savings and a sufficient emergency fund before making a lump sum payment. It's great to pay down your mortgage faster, but not at the expense of leaving yourself financially vulnerable.

Investment opportunities: Consider whether the funds could be better utilized elsewhere. If you have investment opportunities with a higher rate of return than your mortgage interest rate, you may wish to weigh the benefits of investing those funds versus making a lump sum payment.

Tax implications: depending on your location and financial situation, there could be tax implications related to making large lump sum payments. It could be beneficial to speak with a financial planner or tax professional to understand how this might apply to you.

‍Impact on monthly payment: Depending on your mortgage terms, a lump sum payment might not immediately lower your monthly payment but could shorten the term of your loan. Be clear about your goals and discuss them with your lender if you need clarification.

Flexible options: Some lenders offer flexible mortgage products that allow you to make lump sum payments without penalties while also benefiting from other features such as redraw facilities or offset accounts. Explore these options with your lender.

Switching from monthly to bi-weekly mortgage payments might also seem like a small tweak, but its potential benefits are substantial. This method means you're making 13 payments over a year, instead of the standard 12. This slight shift accelerates the reduction of your principal and can curtail the overall interest you'll pay throughout the mortgage's duration. In essence, you're taking proactive steps to reduce the length of your mortgage term, paving the way for earlier financial liberation and peace of mind. Let’s break it down:

The basics:

• Instead of 12 monthly payments, you make 26 half-payments annually, totalling 13 full payments.

Interest and principal benefits:

• Less Interest: More frequent payments reduce the outstanding principal quicker, decreasing total interest over time.
• Quicker Principal Reduction: The extra annual payment cuts down both the principal and related compound interest.

Outcomes:

• Shorter mortgage term: Paying more annually can reduce the mortgage duration by years.
• Financial flexibility: Early mortgage completion allows funding for other ventures, like investing or trips.
• Peace of mind: Accelerated payments provide the satisfaction of owning your home faster, akin to a peaceful evening by a lakeside cabin.

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Refinance to increase your amortization period or lower your interest rate

The easiest way to lower your monthly mortgage payment is to increase your amortization period. Doing this can bring on immediate relief by offering a smaller mortgage payment. The result, however, is that you’ll need to pay your mortgage off for a longer period of time and pay more interest as a result. 

How to increase your amortization period is highly dependent on your particular situation. In some instances, your mortgage provider can increase the amortization period without any other changes being made to your mortgage agreement–where you can avoid penalties, fees, and the need to refinance your mortgage. 

In other cases, you may be required to refinance your mortgage either with your current provider or with a new one–if it’ll give you a lower interest rate. However, refinancing your mortgage essentially means you need to reapply for your mortgage and receive a new set of terms and agreements. And, if you do this before your mortgage term is up, you may also face penalties and additional fees for breaking the terms of your agreement before your term is up for renewal. In this case, it’s helpful to calculate whether the long term gain is better than the short term. 

If you’re considering the latter option, connect with one of the mortgage advisors at Pine today, and we’ll be happy to help find the best solution for you. 

Let's break it down a bit further:

Understanding refinancing: Think of refinancing like trading in your old car for a newer model. Sometimes, it’s totally worth it. You might get a better interest rate or more favourable terms. Just be aware of the “costs” or penalties involved, and make sure the new deal is better for you in the long run.

Consult with your provider: Just like asking your neighbour for a good recipe, don’t hesitate to chat with your mortgage provider about your options. They know your situation best and can guide you on whether to increase the amortization period or look at other solutions.

Look at the big picture: While increasing the amortization period can make your monthly payments more manageable, it’s like stretching out a meal over several courses. You'll be enjoying it longer, but also paying more in interest. Weigh the pros and cons to decide what's best for you.

Refinancing tools and calculators: Utilize online tools to play around with numbers. Imagine it’s like planning a home renovation – you can visualize different outcomes before making a decision.

Consider professional advice: Mortgage brokers or financial advisors are like trusted friends who've walked this road before. If you’re unsure, they can help you navigate through it.