When shopping for a mortgage you'll notice that lenders will show you the payment based on a 25 year amortization. Whenever possible always choose mortgage with an ammortization no longer than 15 years. Say you have a 0,000 mortgage for 25 years at 6.6% interest. Your payments will be 6 a month and over the life of the mortgage, you will pay 2,800 in interest. If you shorten the term to 15 years, your payment will increase by just 6 a month but you will save ,840 in interest. If you live in the Lower Mainland like I do then you may want to consider a longer amortization just so you can keep your payments low enough to allow for home ownership.
Here’s another good reason to pay your mortgage off fast – Unlike the US, mortgage interest on a principle residence is not tax deductible. Because of this, your interest payments are made with after tax dollars. So that 6.6% interest can be as high as 13.2% after tax. It’s pretty hard to find a 100% safe investment that will give that kind of after tax return, but paying off your mortgage (or high interest credit cards) can. Remember, good debts are debts where the interest is tax deductible. Bad debts are debts where interest can’t be deducted. A mortgage on your primary home is bad debt and should be dumped ASAP!
There are ways to make the interest on a principal resident mortgage tax deductible. However, the maneuver requires a person with a lot of assets outside of his home.
Contact Brent Irving for strategies that will allow you to pay down your mortgage sooner.
