Top Tips for Paying Down Your Mortgage Fast
Paying off your mortgage faster is something most new homeowners strive for. After all, putting down a little extra every month, especially in the early years, can really shorten the life of a mortgage. It will also significantly lower the amount of interest you pay the lender.
Despite the benefits of paying down your mortgage sooner , saving money on interest, and being debt free, only 35% of Canadians take steps to actively pay off their mortgage faster.1 That means, 65% of Canadians who have a mortgage, needlessly pay off their loans as dictated by the banks. Over the long haul, this means more money in the banks’ vaults.
The fact is that paying off your mortgage faster can help you save a lot of money. Just how much depends on which strategies you use. If you’re ready to save some serious money, take a look at these easy ways to pay off your mortgage faster and put extra money in your pocket.
Accelerate the Payment Options
An easy way to pay off your mortgage faster is to increase the frequency of your payments . Most Canadians pay their mortgage monthly, but if you increase your mortgage payments to bi-weekly or weekly, the savings can be massive.
For example, if you have a $150,000 fixed-rate mortgage at 3.7%, amortized over 25 years, your monthly mortgage payment is around $765.00. Over that period of time, you’ll end up paying $79,447 in interest payments.
But, if you make weekly mortgage payments (52 payments a year), your mortgage loan payments will be $191.00 per week and it will take just 22 years to pay off. Best of all,
your interest payments will drop to $68,544.
Even accelerating your mortgage payments to bi-weekly can save you a lot and help you pay down your mortgage faster. Paying bi-weekly (26 payments a year) will mean mortgage payments of $382.00; it will shave three years off the mortgage and save you $10,784 in interest payments.
Increase the Amount of Your Mortgage Payments
One of the easiest ways to pay down your mortgage fast is by increasing how much you put down, even if it’s as little as $100.00 extra per month.
If you have a $250,000 mortgage at a rate of 3.49%, amortized over 25 years, the monthly payments will be around $1,250. Increase that amount by just $100.00 and you’ll end up saving $15,400 in interest and pay off your mortgage three years sooner.
Round Up Your Mortgage Payments
Every dollar counts when it comes to paying off your mortgage. Another great way to save on needless interest is to round up your mortgage payments. If your accelerated bi-weekly mortgage payment is $228.00, round it up to $250.00 or even $300.00.
The extra $22.00 or $72.00 may not seem like a lot, but it adds up and will significantly decrease the amount you pay in interest and help pay off your mortgage faster. And the extra money you put down is small enough that it probably won’t impact your monthly budget.
Keep Mortgage Payments the Same Even if Rates Fall
If you renegotiate your mortgage and rates have fallen, keep the payment amount the same if possible. By keeping the payments the same, you’ll be able to pay down the principle much faster.
If you took out a $250,000 mortgage five years ago with a fixed interest rate of five percent, your monthly payments have been around $1,454. If you renew your mortgage and the bank gives you 2.99%, your monthly payments will drop to $1,224.
Instead of pocketing the extra $230.00 per month, keep your payments the same. Doing so will mean paying off your mortgage four years sooner. You’ll also save $15,700 in interest.
Pay a Lump Sum
Putting a lump sum of “found money”—that is money that comes from an unexpected source, like an inheritance, a raise or bonus from work, or income tax refund—on your mortgage can help you pay it off faster.
Making lump sum payments is a great way to pay down your mortgage faster because you’re not making higher monthly payments, you’re using found money. And because you didn’t expect that money in the first place, you probably won’t miss it.
Reduce Expenses and Increase Earnings
Reviewing your budget and finding places to reduce expenses is a good way to save extra money that can then be applied to your mortgage. It may not be easy, but cutting cable, switching car insurance provider, packing a lunch instead of going out, cutting back on new clothes, and even making coffee at home instead of going to a café can help you pay down your mortgage quickly.
Increasing earnings doesn’t necessarily mean finding a part-time job. It could mean taking on extra shifts at the office. No matter where the extra money comes from, it all helps pay down your mortgage faster.
Stay Updated on Interest Rates and Mortgage Options
Most Canadians have their mortgage payments automatically deducted from a bank account. It’s become so easy you can forget about it because it’s automatic. But it’s important to stay informed, that means keeping up to date on interest rates and new mortgage options.
For example, what if interest rates have dropped since you took out a mortgage, but you are only in the middle of a five-year fixed term? Knowing the penalties of breaking the mortgage and reapplying for one at a lower interest rate could save you thousands over the life of the mortgage.
The more information you have the better your chances are of paying down your mortgage faster.
Canadalend.com, Helping Canadians Pay off Their Mortgages Fast
Interest rates in Canada are expected to remain near record-low levels in 2017. If you’re a first-time home-buyer looking to refinance, or even consolidate debt, it’s an excellent time to talk to a licensed agent at Canadalend.com.
At Canadalend.com , our licensed, independent agents can help you figure out how much of a mortgage you can afford. They’ll also help you find the best financial products at the best rates.
How can we get you better financial products than the big banks? Unlike the banks, which only sell their own mortgage products (whether they’re right for you or not), the independent agents at Canadalend.com have access to hundreds of different lenders. As a result, we can help you find a mortgage that meets your financial needs and long-term lifestyle goals. That includes showing you what steps you can take to pay off your mortgage as fast as possible.
The mortgage brokers at Canadalend.com can also get you pre-approved for a mortgage or loan in 24-hours or less.
To see what kind of mortgage or loan you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment for a free personal consultation at your earliest convenience.
1. McFeat, T., “Paying off your mortgage faster can pay huge dividends,” CBC, July 28, 2014; http://www.cbc.ca/news/business/paying-off-your-mortgage-faster-can-pay-huge-dividends-1.2719753.