I went to renew my mortgage today; it looks like a couple of months earlier than the end of the term, it can be renewed and the new rates can start applied right away. I liked this as the interest rates are historically low.
I first wanted to have a 2-years term, which had an interest rate less than 2%; it is so appealing. Yet, then considering the rates may increase substantially in the next two years (who knows?), I opted out for a 4-year term. Plus, it is portable (in case I sell my current home, I can keep having the same rate on the condition that I get a new house and mortgage within two months). That was the most appealing part of the new mortgage.
Anyways, my new interest rate is just a little bit less than what I paid so far; so it does not look like I have gained anything. Yet, I increased my payments just a little bit and reduced the amortization period.
Where does the extra payment come from? A modest salary increase I have had today :))) I think that was a wise decision.
The numbers in the new mortgage are interesting: while the interest rate is not much lower than before, I think it is the (little) increase in the payment that reduces the principal more effectively than my current mortgage (the additional reduction is around $3,000 per year, even though the increase in payment totals to ~$2,000 per year). So I feel like I gained an extra $1,000 per year by this new mortgage. That feels good 🙂
When the bank rep showed me the principal amount at the end of the term, I could not believe that it was around 55% of the house’s price! I never thought that in 6 years, I could pay 45% of the house. I think what they say is true – small increases in debt payment can make a huge difference not only in your debt levels, but also in your psychology 🙂
I am so motivated to increase or make a lump-sum payment to my mortgage right now. I just need to find out a way to save extra funds over the next years. Even it is an extra $20/payment.