What if we told you that there is a way that you can pay off your mortgage in half the time? We bet that you’re thinking that this sounds too good to be true — but it’s actually possible.
To do this, you need to think about your mortgage differently.
It means that you no longer:
- Consider your mortgage as a long-term, regularly scheduled repayment plan towards ownership of your home.
- Consider your mortgage as an open-ended, any-term, debt reduction plan with all your borrowing and deposits tied to the same account.
Other areas of the world have been successfully using these types of mortgage products for many years. Canada is definitely late to this party, but the good news is that these same products are available here — and they can help you pay off their mortgage debt quickly.
At Champion Mortgage, we’re excited to able to offer our clients this option. Here’s what you need to know:
Debt & Revenue Become A Shared Account
Instead of having one account with your mortgage and another account for your savings and chequing, they are combined into a single, shared account.
Here’s how this works:
1. When your debt and revenue are joined together into one account you are able to consolidate all your debts (loans, mortgage, etc.) with one competitive interest rate.
2. Once your accounts are merged, you have the ability to instantly pay down the principal of your mortgage and loans with every deposit because the revenue will be directly applied to your outstanding balance.
Tip: A conventional savings or chequing account will earn you almost no interest, so your money is essentially sitting there doing nothing. In a combined account your dollars go directly towards your principal and reduce the amount of interest you are paying. The interest rate on your mortgage will almost certainly be higher than your savings or chequing account — this means that using the combined account will actually get your money working for you.
3. Every time money is deposited into your account (no matter how small the amount) it immediately goes towards reducing the overall amount owing, which means that the corresponding amount of interest comes down with it. This results in your paying significantly less interest than a conventional monthly or bi-weekly repayment model.
This means that, compared with a conventional mortgage with fixed rates, terms, and repayment structures, you will save thousands of dollars in interest.
There Is No Repayment Schedule
Anytime you put money into your shared account your principal reduces. Yes, it’s that simple. Whether you deposit $5 or $5000, it all goes towards your debt.
There is no scheduled day or time to repay your debt. You have total flexibility. This means that any money deposited into your account, whether it’s your paycheck or money from a birthday gift, it all goes towards your debt.
It doesn’t matter if deposits into your account happen on the first of the month, the 15th of the month, or the end of the month. It doesn’t matter if there is only one deposit in the month or 12 deposits in the month — and you don’t have to spend time and energy writing cheques or setting up transfers in order to make payments!
As your debt and revenue accounts are merged into one account, you will use this same account to withdraw money to pay your bills, taxes, etc. You will be able to withdraw funds and pay bills with this account up to your borrowing limit, without issue.
What’s different with a combined account is that it requires you to be aware of your spending patterns in order to ensure that you are not consistently withdrawing funds on a regular basis, which would result in your not paying down your debt effectively.
If you have controlled spending habits and are able to regularly contribute to your account, then you will be able to reduce your mortgage debt faster than with a conventional mortgage. In fact, we have seen clients pay off their 25-year mortgage in 12.5 years.
If, on the other hand, your spending habits are volatile and you cannot regularly contribute towards your debt without resulting in further debt, this sort of product will not be for you.
Can I Switch To This Type of Mortgage?
We understand that this is, for most of you, a new way of thinking about your mortgage. It really is a shift in approach, but if it’s something you are able to do, you can save thousands of dollars. Give Champion a call and let’s discuss whether this type of product is right for you.