Mortgage Free!

Mortgage free - how many of us will be able to say those words before our 30 year mortgage term is up?

I don't know about you, but I hate debt! Of course most of us have some sort of debt, especially if you own a house. Unfortunately, debt is a common thing in our society. We buy everything from our daily coffee to vacations on credit.

I used to be one of those people. I had the mentality "I'm always going to have some form of debt, so it's no big deal to carry a credit card balance too". WRONG! It is a big deal. However, this post is not about me lecturing you on why you shouldn't be using credit cards (except when used responsibly, to build credit).

This post is about trying to become mortgage free, faster! First of all, you have to remember that banks/lenders are all businesses; they are lending you money *hoping* and *praying* you don't pay it back any faster than you have to. The faster you pay it off, the less interest you're paying and the less money their making off you.

My husband and I bought our first house 2 years ago, shortly after we got married. Back then I wasn't good with money, I wasn't awful either. The best way I can describe it is that I spent the money I had while saving "enough". I saved bare minimum. Needless to say, I have not paid any extra on my mortgage, I have simply followed my pre-determined payment amount, twice a month. Now that we are looking to start a family, we have decided to move into our final-house-until-we-cant-do-stairs-anymore home.  We live in an area where the average house price is $540,000 - I do not want to be paying a couple thousand dollars every month, for 25 years. Since I am more financially responsible, I am determined to pay off this mortgage faster! I know when you're mortgage is in the couple of hundred thousands (especially when it's upwards of half a million *cringe*) it is hard to remember that every dollar counts. When you want to give up, just keep reminding yourself every buck will save you a few bucks in interest! The average person's mortgage will have doubled by the end of the term, due to interest. Here are some tips to become mortgage free faster:

Note: if you have any credit card debt, you should focus on paying that off first!

First and foremost you need an emergency account. You need to have 3-12 months (really, it is whatever YOU are comfortable having) worth of expenses sitting in an account. Don't ever ever ever touch this account. This account is for "I'm going to lose my house tomorrow" type of situations. Once your emergency account is completed, you should start saving for retirement and start a 'discretionary' savings account. This discretionary account will have a few thousand (again, whatever you are comfortable with) in it for things like new tires, your fridge broke and now you need a new one etc. Once both these savings account have a balance you're comfortable with, instead of saving more into these two accounts, you will take the money you used to put into these accounts and pool it into yet another account. This account will now act as your "mortgage lump sum payment" account. Below are a few more suggestions on how to add extra funds to this account:

~ Your tax refund!
~ Bonus from work - it is essentially free money, you shouldn't be relying on this to pay the bills, so throw it into your mortgage lump sum payment account
~ Did you get a nice raise at work? Take that extra pay each paycheque and put that into the mortgage lump sum payment account. You were living without it before, you can still do it!
~ At the end of each pay period, if you have a few dollars left in your spending category, put that towards your mortgage.

A few other tips to paying off your mortgage faster:

~Change your payments to accelerated biweekly; this will add 2 extra payments a year and in turn will knock a few years off your mortgage just on it's own!
~Round up those payments! If your payment is 815 biweekly, round it up to 820. Chances are you won't miss that extra $5.

Note: Most mortgages will allow a certain percentage as a lump sum payment each year on the anniversary date. If your mortgage does not allow this, you will be able to pay the lump sum when your term is up. When you meet with your bank after the 5 year (or 10) year term is up, pay your lump sum then, prior to renegotiating.

I follow almost all these tips. I do not round up my payments. My husband works on a bonus system, and therefore his paycheques fluctuate massively (usually by a couple thousand dollars each paycheque). Therefore, I like to keep our monthly payables as low as possible to ensure we can always pay our bills without drawing from savings. After we decided to move into our new house, I wanted to see exactly how much I needed to have in my 'mortgage lump sum payment' account each year to pay off our mortgage in a time frame that I was comfortable with. With a little help from Scotia Bank's mortgage free faster calculator (http://cgi.scotiabank.com/mortgage/mffc/en/Scotiabank-LTSB-English.html) I found out how much extra I need to put on every year, to pay off my mortgage in 7 years. Great!!! I cannot wait to scream "MORTGAGE FREE" from the mountain tops! My husband and I will be mortgage free by 32 (unless unforeseen circumstances affect either one of us, or the economy). Not to mention, we will have saved almost $200,000 in interest! WOAH!

If we can do it, so can you! All it takes is a few hours of organizing your finances to get started, and a tight belt on where you will spend your money!

Love and peace,
  Polly