When my husband and I bought our first home we started off with a 5 year fixed rate mortgage with an amortization of 25 years. Within our first year when we looked at our mortgage statement we were floored when we discovered that we had spent more than $7000 in interest in our first year!!! We could hardly believe that on such a small mortgage the interest would be so high. And we had a pretty good interest rate at that time, too. Our interest rate was 4.99% when most people were stuck paying at least 6%.
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I received a great tip from a reader recently about green mortgages. If this concept is new to you (as it was to me) you are probably wondering what a green mortgage actually is.
To put it simply, a green mortgage is when you borrow money to make upgrades on your home in order to make it more energy efficient and environmentally friendly. You get to borrow the money as part of your mortgage so you can make one single payment instead of two. And, as mortgages usually have lower interest rates than other types of loans, you will be able to borrow at a fairly low interest rate.
There are all kinds of people out there in the world. I recently came across a website about people who got sick and tired of paying off big mortgages, so instead, they decided to live in a tiny house and pay for their home in cash.
These folks may have a number of reasons for living in a tiny home called a Tumbleweed Tiny House. Some are concerned about the environmental impacts of having larger homes; others just don’t need a lot of space, while others are mostly just glad to be rid of their mortgages.
Although it may not seem like much, making extra payments towards your mortgage and loans can save you a significant amount of money in the long run. Even just a few extra dollars here and there is worth the effort to put towards your principal.
For example, if you take out a loan for $5000 at an interest of 6%, it would take you 5 years to pay it off if your monthly payment is $96.66. However, by adding an extra $50 to your monthly payments, you could pay off the loan in full within 3 years 2 months. If you added $100 extra to every monthly payment, you would pay off the loan in 2 years 4 months.
To make this more meaningful to you, check out this loan calculator and punch in your own loan or mortgage information to see the impact of increasing your regular payments or by adding a one-time lump sum.
My husband and I found that by putting extra money down on our mortgage, it has saved us hundreds of dollars on interest charges. Our goal is to aggressively pay down our mortgage while at the same time not neglecting to save for our future retirement and other goals.
It feels good to pay down debt as it lifts a burden from your shoulders. If you have difficulty using your money wisely, help yourself by putting any extra money away towards the principal of your loans so that you won’t be able to spend it on things you don’t need.
Just think, the sooner you are debt free, the sooner you will be able to use that excess cash flow for the things you really want to do but without the guilt or burden of knowing you will eventually have to find a way to pay for it.
If you are are in an open variable rate mortgage like we are right now, you may want to consider if it’s better to move into a fixed rate mortgage before the prime rate goes up. The Bank of Canada will likely be raising interest rates soon and although prime is at an all time low right now, it won’t stay there forever. Some major banks have already raised their fixed mortgage rates, so if you are thinking of switching, now is the time to do it before the rates go up even higher.
For my husband and I it makes the most sense for us to stay where we are as we are likely going to be selling our home within the next year or so. For those of you who are not planning on selling your home anytime soon, you may find it more affordable within your budget to take advantage of a fixed rate.