When many new homeowners think about their mortgage payment they often cringe to think they’ll be making them for the next 25 years. Most of us like to get out of debt sooner rather than later and save on as much interest as possible. So knowing a few tricks to get your mortgage paid off faster always comes as welcome advice!
Most renters are used to handing in their cheque once a month. But when you’re paying for a mortgage one of the best things you can do to cut down on your amortization period is to make accelerated bi-weekly payments. This means you make a mortgage payment every two weeks.
For example, if you had a $350,000 mortgage with an interest rate of 2.99% and an amortization period of 25 years and you planned on making a mortgage payment once a month it would cost you $146,370 in interest. BUT if you were to choose accelerated bi-weekly payments instead you would save $17,959 in interest and trim down your amortization period by almost three (3) years!
One of the easiest ways to pay off your mortgage sooner is to round up your payment. If the plan was to pay $534 bi-weekly you could instead round up to $600. Doing this will have a small impact on your month to month living but it will have a huge impact on the length of your mortgage and the amount of interest you pay.
For example, bi-weekly accelerated payments on that $350,000 home would be $827.28. If you were to bump up those bi-weekly payments to $900 you’ll cut over 5 years off your mortgage compared to the standard monthly payments!
Use extra cash
If you get a raise consider putting the extra income toward your mortgage rather than toward your other expenses, especially if the extra income is likely to be disposable.
Put birthday money, a work bonus, or money from a garage sale toward your mortgage. Doing this won’t affect your mortgage because it’s not money you receive regularly but it will make a difference to your mortgage. You can also increase your RRSP contributions and then put your tax return refund toward your mortgage.
For example, making a one-time $6,000 contribution toward that $350,000 mortgage will decrease the length of your mortgage by 6 more months!
Make an anniversary payment
Many lenders will allow you to make a lump sum payment at the end of each year of your term. This is a great way to chip away at your mortgage, even if the payment is small.
For example, if you were to make an annual lump sum payment of $500 a year on that $350,000 mortgage, combined with accelerated bi-weekly payments, you would shave another 6 months off the amortization of your mortgage!
Don’t set it up and forget it
It can be easy to “forget” about your mortgage because it comes out as an automatic payment. But keeping your ears open for new opportunities could potentially save you thousands of dollars. For example, let’s say you’re in the middle of a 5-year term but interest rates have dropped since the term started. Finding out what the penalty is for breaking the term of the mortgage and resigning at a lower rate could work in your favour. It may cost you a bit of money in the short term but it could save you thousands in the long run.
Keep in mind that if you have other financial obligations like high-interest debt or you’ve fallen behind on saving for retirement, putting extra money into your mortgage may not be your best option. To find out what plan would is likely to work best for you, contact us today!
If you’re in a position to hammer away at your mortgage and you have the commitment and diligence to stick with it, get started as soon as you can! The freedom of being completely debt-free is not something the average Canadian gets to enjoy. So start cracking!