By Gigi Suhanic
National Post
FP Money
Saturday, August 23, 2003

Question: I've heard a homeowner can save a lot of interest by paying a little bit extra on the mortgage each month. Is that true?

Answer: There are several things you can do that will go a long way to reducing the amount of interest paid on a mortgage and the amount of time it will take to get what is likely your biggest non-deductible debt off your back.

One strategy is to pay a lump sum toward your mortgage. Most lenders will allow you to do that up to a certain percentage of the balance owing without imposing a penalty.

Another strategy is to make mortgage payments more frequently, instead of the usual once a month. "More money goes toward principal. You can probably knock off a couple of years on amortization if you pay weekly," says Adrian Mastracci, a financial advisor with KCM Wealth Management in Vancouver.

For those who are anxious to get out from under their mortgages, Mr. Mastracci advises homeowners to take the plunge and get their mortgage agreement out from whatever dusty recess in which it currently resides.

"It's very boring to read," he says, but is a goldmine of information on ways to fast-track mortgage payments.

Homeowners should also educate themselves by getting an amortization table and figuring out "what if" scenarios.

For example, a $100,000 loan at 6% with a 25-year amortization would work out to monthly payment of $640. Over that 25-year period the homeowner would pay total interest of $91,400.

If the amortization were shortened to 20 years, the payments would increase to $712 but the interest paid would decrease by $20,500 to $70,900.

"Most people don't have total understanding of what they can do with a mortgage," Mr. Mastracci says.

Paying off a mortgage fast is like paying yourself, Mr. Mastracci says.

"Just think what you can do with $640 a month," he says.

LOAN AMORTIZATION IMPLICATIONS
Based on a $100,000 mortgage, borrowed at 6%, calculated semi-annually, same interest rate during entire amortization period:

Source: KCM Wealth Management Inc.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.