WHAT IS MORTGAGE PAYMENT OPTIMIZATION?
Mortgage payment optimization at its core is simply increasing your regular mortgage payment to prepare for potential interest rate increase at the end of your mortgage term and protects you from against payment shock.
WHAT IS MORTGAGE PAYMENT SHOCK?
Don’t get shocked by mortgage rate jumps…
Payment Shock is a nasty surprise that many people are not prepared for, simply because no one is telling them about it.
Payment Shock occurs when we have received a low-interest rate for a 3-5 year term, only for interest rates to rise back to more historically normal levels throughout the period of the mortgage.
Meaning, when you get your next mortgage, you’ll have to pay a much higher payment than you were paying.
In some situations, these payment increases can be very significant.
For example, based on a $300,000 mortgage and the current rate environment we’re in, I estimate you could potentially see the following impact on your mortgage payment over a five year period:
|Previous Rate||Payment Today||VS||Rates in 2-3 Years||Payment at Renewal|
Payment Shock = $244.69 Per Month INCREASE.
WHAT CAN I DO TO AVOID PAYMENT SHOCK?
To combat “Payment Shock” and educate our clients on how to protect themselves, we implement the Mortgage Payment Optimization Plan, a strategy we developed that’s currently used by top mortgage professionals across Canada.
A ClearHome mortgage professional uses a state of the art system that allows you to set the rate that you want to protect yourself from. For example, if you believe that rates may increase to 4.47% over the term of your mortgage, one of our professionals enters that information into the system and it generates recommended schedule to increase your payment and sets reminders throughout your term to help you stay on track.
It’s that easy!
This allows you to make small incremental adjustments to your monthly payment, so you will be prepared for the potential higher payment at the end of your term, plus the small increase in your payment goes directly to principal saving you thousands of dollars in interest and paying off your mortgage years faster.
To continue with our previous example by implementing this strategy we would recommend a $61.17 increase to your mortgage payment at the start of the second year.
Year 2 – $1,410.17
Year 3 – $1,471.34
Year 4 – $1,532.51
Year 5- $1,593.69
The payment increase becomes gradual and the end result is you save 4.5 years off your mortgage eliminate $86,605.38 in mortgage payments.
|Total EliminatedMortgage Payments||ReducedMortgage Balance By||ShortenedAmortization By|
Just to be clear, these are voluntary increases to your payment and only take effect when you decide to pull the trigger. So if one year is a little tight and you don’t want to increase your payment, no worries you don’t have to.
Of course, by following our recommended payment increases it prepares you to deal with that looming higher future payment and all your extra payments go directly to the principal of your mortgage.
This is where you hack and slash years off your long-term over the entire amortization. Seemingly little changes now can have a huge impact on your payments and mortgage balance 20 years from now.
My Mortgage Payment Optimization Plan will help you prepare for increasing interest rates, protect you from future payment shock, and (all at the same time) significantly reduce your mortgage balance, which results in scratching years off your mortgage amortization.