What can $100 do when it comes to a mortgage?

When it comes to mortgages, $100 isn’t gonna get your very far.   But what if you paid an extra $100/mth towards your mortgage?  It’s not a lot of money these days but it can add up to some good savings.

We looked at a $300,000 mortgage with a 2.89% rate and a 25 year amortization. At the end of 5 years, the borrower had paid off an extra $6,444.   The balance owing was $249,435.   And their remaining amortization was 17 years and 9 months instead of 20 years.  This also represented an interest savings of $11,423 over the life of the mortgage.  Not bad.

Now let’s look at paying an extra $200 per month.  At the end of 5 years, the borrower had paid off an extra $12,888 . The balance owing was $242,991.  And their remaining amortization was 15 years and 11 months.  This represented an interest savings of $20,708 over the life of the mortgage.

But what about higher interest rates?  Today’s rates are extremely low and we all know they will go up at some point.   Let’s look at the same $300,000 mortgage but with a 4.00% rate of interest.   These results may surprise you.

At end of 5 years, the borrower had paid off an extra $6,624…..balance owing was $254,537….their remaining amortization was 16 years and 11 months.  This represented a savings of $17,282 over the life of the mortgage… Remember, that just by paying an extra $100/mth…

And if we increased that payment by $200/mth… end of 5 yrs, borrower pays off an extra $13,248….. balance owing is $247,913…. this represents a savings of $31,130 over the life of the mortgage…

As interest rates go higher, you derive a greater benefit for your prepayments…     So the next time you think $100 doesn’t make a difference, think about this example.  Small extra payments can add up to big savings…. and they will add up much quicker when interest rates go up…

Your best interest is my only interest.

As always, I welcome your comments, call and questions..

Steve Garganis 416 224 0114 steve@mortgagenow.ca