Top 5 Tips To Pay Off Your Mortgage Faster
The best way to pay off your mortgage faster anywhere, no matter what the best rates are, is to find room within your budget to make extra payments. There are ways to shorten this time frame and get that mortgage paid off faster to get yourself out of debt sooner. Reducing the number of years you make mortgage payments can add up to big savings over time. Let’s look at 5 ways to do just that:
1. Increase Your Mortgage Payments
It may seem obvious, but if you can increase your monthly payment amount any time during your term you will be paying down your principal faster. If your life situation changes – and you find yourself with extra cash every month – try topping up your payments to whatever is manageable. Most lenders allow clients to pay as much as 20% extra per payment.
2. Setup an Accelerated Payment frequency (bi-weekly or weekly)
There are 52 weeks in the year or 12 months. If you pay half your normal mortgage payment every other week, you’ll make 26 half-payments, or 13 full monthly payments. See how it all works with our Mortgage Calculator. That extra annual payment can take about six years off a 30-year mortgage, allowing you to own your own home faster and save money.
3. Make Lump-Sum Payments Toward Your Mortgage
Making a lump-sum payment means the money is applied directly to your outstanding principal if you have no outstanding interest owing. Most lenders allow for annual payments to be made of the original mortgage amount and not the outstanding mortgage amount. This additional amount can be as much as 20% per year, your mortgages.ca broker will know which lender offers which prepayment terms.
When you have the extra funds it’s a great idea to knock down your principal. It won’t force you into a higher payment every month and you could own your home years sooner.
4. Refinance a Shorter-Term Amortization Period
Due to the historic low interest rates in Canada right now, refinancing a shorter mortgage amortization could be an option. Shorter amortization periods may not be the right thing for everyone so as always, check with your broker if it is feasible for you and your situation.
5. Downsize
It’s OK. It sounds dramatic but if you’re nearing retirement and you still have some years to go on your mortgage, do you really need the big house anymore? Selling your larger home and using the profit to buy a smaller, less expensive home can be a great way to pay off your mortgage faster.
With the housing market in Canada recently driving up prices to unprecedented levels. You may be able to pay cash for your new home and avoid having a mortgage all together. Even if you are not close to retiring, the tiny house movement is big nowadays. We are all trying to lessen our environmental impact and live more simply – with less. The smaller the balance you owe, the quicker you can pay it off, the less money you’ll have going out.
It’s always best to consult a professional mortgage broker before embarking on any of the above. Education and experience is required to make such important and complicated transactions. There’s a lot of money at stake and you need someone in your corner who understands that.
If you would like to speak to one of our agents further about tipe to pay off your mortgage faster. Contact us at mortgages.ca