Your Financial Future

Smart Financial Strategies for Homeowners

In addition to providing you and your family with a place to live, your home is a valuable investment. One of the best ways to realize the benefit of your investment in a home is to maximize your home equity.

Home equity is the difference between the amount for which you could sell your property, and the amount you owe on the mortgage.*

That means your equity has the potential to increase in one or both of two ways: by decreasing the principal owing as you pay off the mortgage; or by appreciation of the property’s value.

Whether you plan to sell your house in the near future, or live in it for the rest of your life, paying down the mortgage can be one of the best and most reliable ways to build equity.

* Less the costs related to selling the property, such as legal fees.

How to reduce your mortgage

The following strategies are all effective ways to pay down your mortgage faster. This will reduce the principal amount owing on your property and save on interest costs, while increasing the equity you have in your home.

Pay more frequently. You can choose to make your mortgage payments monthly, semi-monthly, bi-weekly or weekly. Changing from monthly payments to accelerated weekly payments gives you the equivalent of an extra month’s payment over the course of a year. You’ll not only reduce your total interest costs over the life of the mortgage but you’ll be paying off more of the principal.

Choose a shorter amortization. The amortization is the length of time needed to pay off your mortgage completely. In Canada, mortgages are amortized anywhere from 5 to 40 years. When you renew your mortgage, consider choosing a shorter period. Your monthly payment will be higher, but you’ll save many thousands of dollars in interest — and be mortgage-free — sooner.

Chart is for illustration purposes only.
* Calculated assuming a constant interest rate throughout amortization period over the life of the mortgage. Compounded, semi-annually not in advance.
Source: Mortgage Centre: http://www.rbcroyalbank.com/products/
mortgages/shorter_amortization.html

Increase your regular mortgage payments. Whenever you get a raise, consider dedicating the extra amount you receive each pay cheque to your mortgage. By increasing your usual payments, you’ll reduce the principal owing more quickly. Royal Bank of Canada lets you increase payments by up to 10% once a year.

Take advantage of pre-payment options. When you make a mortgage pre-payment, the entire amount is applied directly to the mortgage principal. As a result, even small lump-sum payments can make a big difference over the long term.

We offer a Double-Up payment option that allows you to prepay between $100 and the equivalent of the principal and interest portion of your regular monthly mortgage payment — on any or every payment date. This can make a big difference in reducing the length of your mortgage and the interest costs.

This example, based on an $80,000 mortgage at 8.00%* amortized over 25 years, shows how you can reduce the time it takes to pay off your mortgage simply by doubling up one monthly payment each year.

* Calculated, semi-annually not in advance.
** Over the life of the mortgage, assuming constant interest rate throughout amortization period. Chart is for illustration purposes only.
Example taken from: http://www.rbcroyalbank.com/products/
mortgages/double-up_payments.html

Consider a variable-rate mortgage. When you choose a variable rate mortgage, mortgage payments are set for the term, even though interest rates may fluctuate during that time. If interest rates go down, more of the payment is applied to reduce the principal; if rates go up, more of the payment is applied to payment of interest. A variable rate mortgage provides you with the flexibility to take advantage of falling interest rates and to convert to a fixed rate mortgage at any time.

RBC Royal Bank has many convenient options for paying down your mortgage sooner. Your mortgage specialist would be happy to review them with you.

Making improvements to your home

At some point after you’ve purchased a home, you may consider making home improvements to it. This can include anything from small renovations to large additions to environmentally friendly adaptations.

The renovations and improvements you make to your home may increase its value, particularly kitchen and bathroom renovations, which are considered to be the most valuable. (According to the Appraisal Institute of Canada, these can add 75% to 100% of the renovation costs to the value of the home.)

However, when making changes to your home, you should focus on those improvements which will make it more comfortable and practical for your family to live in.

Paying for your home improvements

There are many ways to finance a home renovation or other major purchase — and the equity in your home could even help.

• The RBC Homeline Plan allows you to divide up your credit needs into more manageable pieces — each with a different term and maturity date. You can enjoy the advantages of both variable and fixed rates by diversifying your mortgage. That means the variable portion allows you to take advantage of lower interest rates, while the fixed rate portion protects you if rates rise.
• A Royal Credit Line is a secured line of credit where you use the equity in your home or guaranteed investments to secure a higher credit limit. Because it’s secured, the interest rate is lower than a non-secured line of credit.
• Mortgage Add-On is a convenient mortgage option that lets you access additional funds by simply adding them on to your existing RBC Royal Bank mortgage, based on the current appraised value of your home.

For more information about borrowing, visit your local RBC branch and talk to an RBC Mortgage Specialist.

	Find out how long it will take to pay off your mortgage
	Find out how different payment frequencies can affect your mortgage
	Learn more about how to pay down your mortgage faster

The content of this website is provided for the general guidance and benefit of our clients. This website is for informational purposes only and is not intended to provide specific advice. See full disclaimer.

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