By refinancing, you may, at first glance potentially be extending the time it will take to pay off your mortgage, but there are many ways to pay a mortgage off faster and save thousands in interest payments. It is worth speaking to your broker to discuss merging higher interest balances into a mortgage balance.
The key, when consolidating debt is to adjust the mortgage payments upward as close to the collective payments you were already making in order to take maximum advantage of the much lower interest rate that a mortgage will typically offer.
Most mortgage products, for instance, include prepayment privileges that allow payments of 15% – 20% of the principal (based on the opening balance of the mortgage) per calendar year. This will also help reduce your amortization period (the length of your mortgage).
Often, the frequency of the mortgage payment can be changed to weekly, or ideally, accelerated biweekly payments. Not to be confused with semimonthly mortgage payments (24 payments per year), the accelerated biweekly mortgage payment plan (26 payments per year) will pay the mortgage off faster and will save a significant amount of (interest) money over the term of the mortgage.
In addition to these options, most lenders will allow an increase of up to 10%, 15% or even 20% of the regular payment to be activated. The power of increasing your mortgage payment by $50.00 year over year is the faster paydown, combined with preparation for potentially higher interest rates come renewal time.
As always, if you have any questions about refinancing, reducing debt or paying down your mortgage quicker, we're here to help!