Now that you’ve purchased your dream home, paying off your mortgage as soon as possible is one of the best investments you can make. Paying off a mortgage earlier can save homeowners thousands of dollars and give them the peace of mind of being debt-free.
Want to pay off your mortgage faster? Here are five money-saving strategies:
- Make larger monthly payments
- Refinance to obtain a lower interest rate
- Make bi-weekly accelerated payments
- Be informed of mortgage payment options
- Make payments with unexpected money
By paying more each month, homeowners can reduce the amount of the mortgage principal. Any additional amount can make a difference, even $25 a week or $50 a month will help shorten your term length. As well, the quicker you pay off your mortgage loan, the more money you will be able to save in interest charges. When more of the payment is paid onto the principal balance, less of the payment goes towards interest expenses.
Refinancing can allow homeowners to reduce a high interest rate mortgage if the current interest rates are lower than the original closing date. By reducing your interest rate, you will have lower monthly payments and you will be able to save money by lowering the total balance of the loan.
When making bi-weekly accelerated payments, you are able to make half of your regular monthly mortgage payments every other week. By doing so, you are able to make 26 half-payments (or 13 full) per year instead of 12 full payments. This extra payment per year will help you take years off of your mortgage and save money in interest charges.
Some lenders will allow you to make payments at certain times that help you pay off your mortgage quicker. For example, most banks will allow you to make one payment per year, called an annual lump sum payment, which will go directly into paying off the principal.
Use any unplanned money, such as a work bonus or birthday money, towards your monthly payments. Another option is to increase your RRSP contributions and apply your next tax refund to your monthly mortgage payments. If any of your bonds or stocks mature, take your earnings and invest it towards paying off your mortgage. Any of this extra money can be used to increase your monthly payment without hurting your budget.
Note that some mortgage terms include pre-payment penalties. So, before trying these strategies, consult with a mortgage broker and review any penalties that may apply if you pay off the mortgage earlier than the negotiated date. Contact us if you have any questions and one of our brokers would be happy to help you.
Written by Christy Lee
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