For most Canadian homeowners, a 20 to 30-year mortgage can seem like an impossible long-term commitment, but it doesn’t have to be. There are several painless ways to pay off your mortgage quickly. If you are dreaming about what it would be like to be mortgage-free, then consider these helpful tips to make those dreams a reality.
1) Overpay on your mortgage
If you or your partner’s salary increases over time, consider increasing your mortgage payments as well. While increased disposable income is always nice to have, you’ll benefit from huge saving on interest rate charges over the lifetime of your mortgage and pay off your mortgage sooner. Let’s assume a $300,000 mortgage at 2.79%, amortized over 25 years. Monthly payments would be $1,387.61.
Let’s say your monthly salary increases by $200 per month, and assuming a fixed interest rate of 2.79%, by paying an additional $200 per month towards your mortgage, you’ll save a whopping $12,800 towards off your principal balance in your first five years alone.
2) Pay your mortgage more frequently & accelerate it.
Did you know that your mortgage accrues interest every day? That means the shorter the space between payments, the less interest amasses. Switching from monthly payments to bi-weekly payments will no doubt save you money in the long term. Say we take the example of the $300,000 mortgage in tip 1; the monthly repayments are $1,387.61. Bi-weekly payments on the same mortgage would be $640.04. Most lenders do offer an accelerated weekly or bi-weekly payment whereby, the bi-weekly payment amount (26 payments per year) is increased to what the semi-monthly (24 payments per year) payment would be to $693.81, therefore with each bi-weekly period, an additional $53.76 is paid towards principal. By doing so, in your first five-year period alone, you would save an estimated $7,500 off your principal balance.
3) Make lump-sum payments
When you get a work bonus, tax return, inheritance money or another form of a cash injection throughout the year, consider putting it towards your mortgage. Adding just $1,500 extra to your mortgage per year will allow you to pay it off years sooner and combined with accelerated bi-weekly payments that we talked about in tip 2 will shave additional interest on your mortgage. Most lenders in the marketplace today offer between 10 and 30% in pre-payment options. Contact us to find out more about the pre-payment options available to you.
