How To Pay Off A Mortgage Faster
In Ontario, there are a handful of strategies that can help you pay off your mortgage faster. While it might not always be financially possible to do so, I want you to know all of your options for when it is! Paying off your mortgage quicker than anticipated can lead to thousands of dollars in savings. The logic behind the savings is that if you pay down the mortgage using one or multiple options below, your principal amount will decrease and therefore you pay interest on less money, resulting in saving more than if you followed your original payment schedule. Let’s dive into your options!
1. Increase Your Monthly Payments: This is one of the most simple strategies. Over time, if you increase your monthly payments, it will make a significant difference, in some cases saving you thousands of dollars. With this strategy, you need to confirm with your lender that you do not have any pre-payment penalties or restrictions. You can read my blog on pre-payment penalties here.
2. Bi-weekly or Weekly Payments: This is an alternative to monthly payments. The result of this strategy is that you’ll end up making extra payments throughout the year, decreasing your mortgage faster.
3. Lump Sum Payments/ Extra Payments: If you have extra money coming in, or hanging around (e.g., bonus at work, tax refunds, gifts, inheritance etc.) the perfect way to utilize this is to make a lump sum payment on your remaining mortgage. This can be a large sum of money or even just an extra payment towards the mortgage. This will directly go towards the principal amount of your mortgage and therefore reduces the amount of interest you’ll be pay moving forward.
4. Refinance to a Shorter Term: For example, if you currently have a 30 year term on your mortgage, you can consider refinancing to a shorter term (e.g., 15 years, or 20 years). By decreasing the term, your payments will increase but you will also pay off the loan faster.
5. Rent a Portion of Your Property: This strategy will generate extra income which can then be directed towards paying down your mortgage. If you have an empty, finished basement that you’re not utilizing, this is a great option.
It is very important to note that the success of the strategies I highlighted above vary based on your lender and the terms of your mortgage. If this is something you are considering, it is important to consult with an expert like me to ensure that you’re in a financial position to do so, and that it aligns with your goals. Book an 18 minute meeting with me to start discussing your options today.
