Paying off your mortgage as fast as possible reduces the amount of money you spend on interest, as well as lowering your debt and therefore increasing your net worth.
To pay off your mortgage faster, you need to shorten the amortization period, and pray for lower interest rates along the way to help keep a lower payment. With the ever increasing home prices, most Canadians are carrying a larger than ever mortgage balance and must opt for the longest amortization period allowed in order to qualify plus make it affordable. Therefore, if you can’t budget for shorter amortization, here are some other ways to pay off your mortgage faster:
Same Payments with Renewed Lower Interest Rates
Renew your mortgage with a lower interest rate, but with the same monthly payment plan. By paying the same amount, but with a lower interest rate, you will pay more towards the mortgage and less on interest.
Increase Payments When Refinancing
Whenever your budget offers an opportunity to increase your payments (even in the smallest amounts like let’s say $50 or $100.00), be pro-active and do that. You may think that this won’t have a significant effect, but that’s where you’d be wrong. The smallest increase in payments will reduce the total you pay towards interest, as well as reduce your mortgage total owing.
Lump Sum Payments
Paying a lump sum payment on your mortgage, whether that be monthly, quarterly or annually, will reduce the total you spend on interest and dramatically shorten your mortgage amortization period. Some homeowners may not want to change their payment amount, but when bonus time or income tax refund comes in, they are in a position to make a respectable lump sum contribution. For example, if you paid 10% of the remaining mortgage annually for 5 years, you will pay 50% of the mortgage and cut the amortization period in half.
Accelerated Payment Plans
An accelerated payment plan divides your monthly bill into smaller bi-weekly or weekly payments. The more frequent your payments are, the less total interest you pay on your mortgage. Also, by opting for an accelerated payment plan also, you make one extra payment each year because of the months to weeks payment conversions. (You can also accelerate monthly payments as well because for some people such as self-employed or commissioned where income fluctuates on an ongoing basis, they may not be able to commit to more frequent payment. By increasing your monthly payment, you can achieve the same results as the accelerated bi-weekly or weekly).
Talk to a Homefund mortgage broker and get informed of the possible ways you can pay off your mortgage faster and save thousands in interest.