It doesn’t sound like a big number, but when you realize how interest is calculated you may be surprised. Interest on a mortgage is compounded semi-annually, this means the interested is adding back into the principal every six months. It is no wonder it takes 25 years to pay off a mortgage, it is mostly interest, especially in the early stages.

Below is a comparison of a $300,000.00 mortgage amortized over 25 years based on 5 year fixed rates of 2.99, 2.74 and 2.49%:

The first calculation to look at is the savings at the end of term:

Mortgage 2 paid off $1,282.41 more principal than Mortgage1

Mortgage 3 paid off $2,587.83 more principal than Mortgage1

You may think that that’s a modest savings because it is based on a 5-year term, but wait there is more!

Take a look at the difference in monthly mortgage payments:

Mortgage 2 payments are $38.18 less per month, or $2,290.80 less than Mortgage 1 for the term.

Mortgage 3 payments are $75.79 less per month, or $4,547.40 less than Mortgage 1 for the term.

In essence you are paying more per month on Mortgage 1 to pay off less principal. Does 0.50% save you money? Absolutely, $7,135.23 to be exact!

It doesn’t stop here; we can show you how to make these savings work by accelerated/increasing your payment thus decreasing the amount of interested being compounded and lower the amount of years to becoming mortgage free.

Contact a Dominion Lending Centres Mortgage Professional today to learn more!