How To Pay Your Mortgage Off Faster

When buying a home, many people focus on their mortgage rate and amount. Once they get their mortgage, people tend to make their monthly payments and forget about it. After the mortgage has been placed, you can still save thousands in interest and take years off your debt. The following are a few tips you can use to minimize your debt and pay your mortgage off faster.

1. Add an extra bit each month

Each month, add a set amount to your regular mortgage payment. “Even an extra $15 or $25 per payment adds up. For instance, if you paid bi-weekly and added an extra $25 per payment, after five years you would have reduced the principal loan by 2.5% over the life of the debt (assuming a 2.85% fixed five-year rate on a $450,000 mortgage amortized over 25 years), for more than $7,350 in savings,” says Romana King in moneysense.ca

2. Use your raise or bonus.

Did you get a bonus or raise from work? When your salary increases, try applying the additional funds to your mortgage. You won’t miss the money because you are already living without it, and the additional money will go a long way to reducing the principal mortgage debt. If you are near your renewal date and you got a raise, you could also reduce your amortization period so that your monthly payments are increased to match your raise.

3. Double your payments

If you want to pay off your mortgage, a good, safe bet is to double-up on your regular mortgage payments in any given year. By paying double the amount you typically owe a few times a year, you can shave a thousand or more off what you owe and this means  months or maybe even years off the amortization.

4. Did you get a tax refund?

Use your refund to pay down your mortgage. Your regularly scheduled payments won’t change, but when you renew you’ll be glad for any lump sum payments that you made. Make as many principal payments as possible early in your mortgage. The more prepayments you make, the less interest you'll pay over the entire mortgage term.

5. Retire your fixed income

If you invest in bonds or GICs, consider using these investments (in part or in whole) to pay off your mortgage principal once they mature. You’ll be trading in one low-risk investment for another, so you won’t be adding risk to your expected, future return.

6. Unexpected money

If you recently came into some unexpected money like an inheritance, lottery or your investments paid off, use the money to pay down your mortgage principal. Consider that every lender and mortgage has their own prepayment/lump sum payment rules. Some allow monthly double-up payments. Most mortgages provide privileges that allow you to make additional payments each year, usually between 10% and 25%. To save yourself from incurring a prepayment penalty read your mortgage document or contact your mortgage lender.

7. Speed up your mortgage payments

Instead of paying $1,000 per month, why not pay $500 every two weeks? If you divide your monthly mortgage payment in half and make that payment every two weeks, you will be making 26 half-payments in a year, the equivalent of one full additional monthly payment each year. This adds up over the years.

Contact Salar Taba at 416-465-8888 or visit our website at envisionrealty.ca for more information about mortgages or buying or selling a home!