Tips for paying off your mortgage faster

Audrey Wamboldt, The Burnside News

 

Mortgages in Canada are generally amortized over 25-year terms. While this seems a long time, it doesn’t have to take anyone that long to pay off their mortgage if they choose to do so in a shorter period of time.

With a little bit of thinking ahead and a small bit of sacrifice, most people can manage to pay off their mortgage in a much shorter period of time by taking positive steps such as:

• Making mortgage payments bi-weekly accelerated! This simple option will lower your interest paid over the term of your mortgage and results in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way can take your mortgage from 25 years down to just 21. Just make sure it’s accelerated bi-weekly to enjoy the savings benefit.

• When your income increases, increase the amount of your mortgage payments. Let’s say you get a five per cent raise each year at work. If you put that extra five per cent of your income into your mortgage, your mortgage balance will drop much faster without feeling like you’re changing your spending habits. We all live to our “cash ceilings” — the more we earn, the more we seem to spend! Being pro-active when you get that raise or bonus will ensure your mortgage is reduced considerably each year.

• Mortgage lenders will also allow you to make extra payments on your mortgage balance each year. Just about everyone finds themselves with money they weren’t expecting at some point or another. Maybe you inherited some money from a distant relative or you received a nice holiday bonus at work. Apply this money to your mortgage lender as a lump-sum payment towards your mortgage and watch the results.

• Round up the pennies. If your mortgage is online, each payday take a look at the remaining balance for that day. Whatever your balance is for that particular day, deposit the equal amount of just the end dollars and cents into your savings account. Once you have $100 saved, apply it as a pre-payment privilege. An example: today if my balance is $ 129,778.34, the extra payment would be $ 8.34 — just the end dollar and cents.

• One last word of caution: remember not to exceed your annual pre-payment privilege limit for increasing your payments or the lump sum privilege. Most lenders allow for an annual prepayment of anywhere between 10 and 20 per cent of the original mortgage balance and they will also allow an increase to your regular payments. Try not to exceed this amount or the savings you would have enjoyed may have to go into a bank penalty!

Contact your bank or mortgage provider to investigate the pre-pay privileges you have on your mortgage.

These simple tips might just help to make you richer than you think! The old adage of ‘save the pennies and the dollars will take care of themselves’ is even more of note in today’s world. By applying these strategies consistently over time, you’ll save money, pay less interest and pay off your mortgage years earlier. And maybe even be able to enjoy early retirement mortgage free!