Ways to Pay Off Your Mortgage Faster
There are several ways to pay off your mortgage sooner and save money on interests. The following are few of the many strategies you may be able to implement:
- Choosing an accelerated bi-weekly or accelerated weekly payment schedule. To see how this can shorten your amortization and enable you to pay off your mortgage faster, you may also read our article on How Choosing the Right Mortgage Payment Frequency Saves You More Money.
- Making additional payments.Most lending institutions will allow you to make additional payments. This can mean a one time lump sum payment, or several lump sum payments throughout the year. Often this can be done in conjunction with your regular mortgage payments. You may have heard of "Double up" payments. This simply means doubling the amount of your payment for as long as you wish. ($2,000 per month instead of the usual $1,000). The total amount you can pay additionally in a year will vary, but can not exceed the pre-payment privilege for that year. The pre-payment amount is always pre-set and ranges typically from 10% to 25% per year.
- Selecting a shorter amortization period especially upon renewal. At the end of each mortgage term, you have a renewal date. If interest rates at this time are about the same as they were when you first got your mortgage, or even lower, then you should consider decreasing your existing amortization period. A reduction in your amortization means a shortening of the total length of time it takes to pay off your loan.
All the amortization really does is determine your monthly payments. The larger you choose to make your payment amount, effectively the smaller the length of time (amortization) it will take to pay off your total debt. Renewal time is always the best time to consider switching your mortgage to another lending institution. In Canada Mortgage Hub, we will be able to obtain a better interest rate than you can negotiate by yourself, so it is often best to consult us. This should be done approximately 4 months before your renewal date to guarantee the lowest rate at the time of renewal.
- If rates have dropped, you may refinance at a lower interest rate at the same time keep your periodic payments the same. This enables more of the payments to go towards the principal.
- Implementing the "Smith Manoeuvre" strategy. For more information, read our article on How To Make Mortgage Interest Tax-Deductible.
If you put a little thought and planning into your "mortgage strategy," you could save tens of thousands during the course of your loan.
