And, poof, the mortgage magically disappeared!

Remember that Visa card commercial where the balance on the credit statement magically disappeared? That was a good commercial. Who doesn’t dream of wiping their debt clean? Of winning the lottery? Heck, even the 50-50 draws at sporting events are enough to give you hope that you’re about to score an unexpected financial coup. (“We’ll pay off our car, take a little trip, maybe put aside a couple hundred for those shoes I saw...”) Stop! It doesn’t have to be a dream or stroke of insane luck. If you play your cards right (and by that, we mean financial strategies), you actually can start to wipe away what is the biggest debt for most of us – our mortgage - faster than you may think.

You can always negotiate a lower rate (yes!). Leverage what you got, baby.

It may sound like wishful thinking, but you can shave thousands of dollars off your mortgage costs by looking at a variety of rather simple strategies available to cut your costs.

First things first: you can influence the rate

Let’s start with the basics: the rate. Even the smallest difference in a mortgage rate can make a huge impact on how much money actually comes out of your wallet.

For example, a 0.25% decrease in your mortgage rate will save you $250 per $100,000 of mortgage each year. Real-life scenario: If you have a $300,000 mortgage spread out or amortized over 20 years, that 0.25% rate decrease can save you $15,000 over the life of the mortgage. Not too shabby.

What does this tell us? If you are in the position of setting up, renewing or renegotiating a mortgage, don’t settle for the decreased posted rates at your bank. You can always negotiate a lower rate (yes!), especially if you do a lot of business with that bank or can bring more business to them by switching your other accounts over to them. Leverage what you got, baby.

Let’s say a friend is currently renegotiating her mortgage and wants to combine her line of credit and mortgage. And then let’s say her former mortgage rate was about 7.0% (a bit high for what is now the norm, but don’t expect them to stay so low forever). By using all her bargaining power - including her long relationship with the bank (and the low rates on her current loans) – she manages to secure a 4.5% rate. And poof! With a $200,000 mortgage amortized over 25 years, she stands to save about $88,000 at this lowered rate. The power of persuasion can be a very lucrative thing.

Other strategies to wash that mortgage out of your hair

Saving money with lower rates isn’t the only way to shave thousands of dollars off the money you fork out for your mortgage. There are a number of different ways to save:

1. Changing when you make your payments. If you pay your mortgage off every two weeks instead of monthly, you are making 26 payments instead of 12. This equals one extra full payment each year that is applied directly to the principal of the mortgage (the total you borrowed from the bank), paying it down a heck of a lot faster. In the friend’s case, if she pays her new mortgage off bi-weekly instead of monthly, she’ll save an additional $20,000 on her 4.5% mortgage. (Make sure two bi-weekly payments equal a monthly payment to get the benefit.)
2. Paying lump sums throughout the year. Take your yearly tax refund or performance bonus and pay down your mortgage. Not as fun as a last-minute trip, but definitely more wealth-inducing (and who doesn’t want that?). The payment directly reduces the principal amount owing and therefore the amount on which you are paying interest.
3. Increasing your payment amounts. When you get an annual increase in pay, instead of just pocketing the extra cash, increase your payments. (Out of sight, out of mind.) Again, this extra money comes off your principal. For example, if you pay a $100,000 mortgage with a 7% interest rate off in 15 years instead of 25, your monthly payments will be nearly $200 more, but you will save nearly $50,000 in interest.

Seek a little help from a friend

As in all matters dealing with your hard-earned money, speak to your financial advisor about what is best for your situation. Your advisor can look at your budget to discuss how much of a payment you can afford, or she may even be able to help you negotiate a better deal. With good planning and diligent payments, you may just find that nagging mortgage tugging at your leg grows up and leaves home. But unlike your child, this is one thing you won’t miss.

This article was modified with permission from the writing and expertise of Terri Williams, CFP, Vice President, Editorial Services and Production with DundeeWealth. Terri is the former President of the Investor Education Fund and has over 20 years experience as a personal finance writer and consumer expert for numerous publications and companies. You can contact her at twilliams@dundeewealth.com or read more of her articles here.

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