How Record Low Interest Rates Help You Pay Off Your Mortgage Faster

Record low interests rates are helping Canadians pay off their debt faster, but cheap borrowing costs are not enough to overcome the red hot housing sector, according to a new survey.
The Canadian Association of Accredited Mortgage Professionals says 35% of Canadians were able to bump up their payments in the last year, some of them taking advantage of a renewed loan at a lower interest rate. That lower rate allows them to apply more of their monthly payment to principal as opposed to just interest.
“There are people comfortable with what their payments are when they are renewing and [the lower rate] becomes an additional payment,” said Jim Murphy, chief executive of CAAMP.
A $250,000 mortgage at 4%, amortized over 25 years, has a monthly mortgage payment $1,315.06 but if you lower the rate to 3% — the going rate on a five-year rate mortgage — your monthly payment drops to $1,183.12. Keep the payment the same and that extra $131.94 can be applied to principal which will ultimately mean your loan is paid off more quickly.
CAAMP found in its May survey that the average mortgage rate of a Canadian homeowner is 3.24%, that’s down from 3.5% a year ago. It said the renewal rate for what it called “recent” mortgages was down to 3.02% on average.