Only one in five take advantage of extra payment option: poll

The road to mortgage-free living is paved with good intentions but little actual progress, a recent Canadian survey suggests.

Although homeowners show a distinct preference for mortgages with generous provisions for lump-sum prepayments, few actually make such payments, according to a poll by Clayton Research and Ipsos Reid.

In 2005, only about one in five mortgage-holders made any extra payments, and for those who did the amounts were small, representing only about 2 per cent of the debt outstanding, the survey found.

"This relatively low use of prepayment options is interesting in light of the fact that prepayment flexibility is cited as a top factor in choice of lender," Clayton Research said.
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On the bright side, most Canadians now make accelerated biweekly or weekly payments rather than the monthly ones that were the norm 20 years ago.

Escalating house prices have increased the equity that homeowners possess to an average of $131,000 across Canada, the report noted. In 1999, when home values were 75 per cent lower, the average equity was $73,000.

The typical Canadian homeowner now has a mortgage in the $100,000 range, according to the survey.

And one-quarter of homeowners are doing additional borrowing against the value of their property in the form of secured lines of credit.

The three top reasons given for borrowing additional money were renovations, consolidation of debts, and buying a vehicle.

Clayton Research said it was "comforting" to see equity loans being used for investment in a home or for buying new assets rather than for daily expenses, vacations or divorce costs, "although the last item might be considered by some as an investment."

Brent Irving, mortgage broker with Global Mortgage Corp suggests that it's important to make extra payments even if the it's for an amount that you feel is insignifigent because the long term savings can be signifigant.