The best option is to get the lowest interest rate available, this allows you to save money over the long term.
However, you should be careful because if you have a shorter amortization then you will likely have higher payments. While you will be saving money in the end with this option due to lower interest rates, you will also need to make sure you can afford the short-term payments.
One way to lower your risk and still save money is by getting a 25 to 30 year amortization on your mortgage while increasing your payments. Most lenders allow you to do this without charging any penalties. Even if you can only increase your payments by a small amount, you will be able to pay off your mortgage years earlier whilst also enabling you to reduce your payments back to the original low amount in the event that you need the extra money.
Provided you have the right mortgage, you can easily increase your payment by as little as five percent. Even though this is a small change in your payment amount, it can make quite a difference in the long term. That extra five percent works to pay off the balance or principal of your loan faster.
If a new baby comes along for example or you have a medical emergency and you need that five percent; simply reduce your payments back down to the original amount and you can have the five percent for those other expenses.
Keep in mind that many lenders will have some restrictions on how much you can increase your mortgage payment and the number of times you will be allowed to adjust it.
Another way to reduce the time that you will be paying off your mortgage is making payments in lump sums. If you cannot afford higher payments then this is a good option. Take your annual bonus from work or your tax return and put it towards your mortgage. Again, this will help reduce the principal of your mortgage and will lower your interest rate in the end. Even if you can only make small payments, every year you will be able to reduce the total time it takes to pay off your mortgage.
| Essential
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