Given that a mortgage is the largest form of debt most people will take on in their lifetime, it’s not surprising that it can also be the source of at least some financial stress and anxiety.
But don’t despair, as there are ways to reduce or hopefully eliminate that stress by adopting some tips and best practices when it comes to managing your mortgage.
Automate your mortgage payments
You should never be in a position where you worry about whether you’ll have enough money in your account to cover your mortgage payments. A good first step is to have your payments come out of the account that your paycheque goes into. To avoid any possibility of a missed mortgage payment, see if you can match your paycheque to your mortgage payment schedule, or even give yourself a day or two buffer. That said, if you insist on having a separate account for your household payments, ensure you automate the transfers.
If you’re manually transferring money to an account where those payments are withdrawn from, you run the risk of miscalculating the timing or amount of funds in the account, which could result in a missed mortgage payment. Even one missed payment can have consequences on your credit score and/or your standing with your lender.
Increase your free cash flow
For those who find their mortgage payments are taking a big chunk of their monthly income, homeowners who have built up at least 20% equity in their home may be able to refinance to lower their mortgage payments and possibly get a lower rate too.
Keep in mind that to be approved for a mortgage refinance, your total debt service (TDS) typically must be under 44%. This means your mortgage payment, monthly property taxes, heating costs and any debt payments must be less than 44% of your verified gross monthly income.
A refinance can also allow you access equity in your home by replacing your current mortgage with a larger one. The additional funds could be used to pay off higher-interest debt, such as credit cards, thereby reducing your monthly interest costs and payments.
Refinancing a mortgage before maturity may result in a prepayment penalty, however it still may make sense and save you money, so it’s important to consult with a broker to ensure refinancing is suitable for you.
Pay off your mortgage sooner
If you don’t like the idea of a large mortgage debt hanging over your head, there are steps you can take to pay off your mortgage ahead of schedule.
Not only can the act of paying off your mortgage ahead of schedule have a positive impact psychologically, it can also save you thousands in interest over the life of your mortgage.
The most common ways you can speed up your mortgage pay-down is to increase your mortgage payment or make a lump-sum payment. If you’re increasing your mortgage payment, some lenders allow you to double your payment amount, while most permit increases ranging from 10% to 20%. If you are looking to make a lump-sum payment, most lenders cap these payments at 15% or 20% of the mortgage amount per year.
In both cases, be sure to check your mortgage contract to verify your lender’s prepayment terms. Paying down more than is permitted can also result in prepayment charges.
Talk to a professional
If you do find yourself experiencing mortgage stress, or anticipate that you may soon have trouble making your mortgage payments, you should talk to a mortgage broker right away. They’ll be happy to review your situation and offer customized solutions.