Today I’ve got a reminder for those of you with variable rate mortgages which is don’t forget to make your prepayments!
Currently interest rates on the variable mortgage are still ultra-low – the Prime rate is only 3% – and you’re probably seeing the lowest monthly payments that you ever will see for the next little while.
So don’t spend that money, the savings that you’ve got put back into the mortgage! And I’ll give you two reasons why that is a good thing.
Number 1 – obviously you are just saving the money, automatically. You are paying down the principal of your mortgage with any prepayments you make, not any interest. That money is paid off, you don’t owe it anymore and now your property (equity) is worth more.
Number 2 – you are reducing the amount of interest you will be paying in the future. Your monthly payments will remain the same however more of that is going towards the principal of your mortgage balance and less to interest. You’ve already made the prepayment and you’ll never have to pay interest on that amount ever again and you’re only paying interest on the amount that you still owe. So your mortgage will be deducted faster and faster and eventually you’ll owe nothing!
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