Tips For Paying Off Your Mortgage Faster

The longer you have a mortgage, the more interest you pay. The more interest you pay, the more money banks make. Here are a few ways that you can keep more money for yourself:

  1. Accelerated Bi-Weekly Payment Option
    A good way to shorten your amortization may be to choose the accelerated bi-weekly payment option. This allows you to pay half of your monthly payment every two weeks. By doing this, you end up making the equivalent of one extra monthly payment a year. To see how this works, see the following example.
  2. Keeping the Same Payments if You Renew At Lower Interest Rates
    If you have a great mortgage broker, you may be able to renew your mortgage at a lower interest rate, which will reduce your future payments. An easy way to accelerate your mortgage payments is to maintain the same payments you were making during the previous term. The difference between your previous payments and your current (lower) payments will be applied to the principal, to reduce your mortgage balance and help you pay your mortgage down faster.

    This is one of the easiest ways to pre-pay your mortgage, since it does not affect your budget and spending habits (you accelerate your mortgage payments, while continuing to make the payments you were accustomed to making during the previous term).

  3. Increasing the Amount of Your Payments
    Most lending institutions will allow you to increase the amount of your mortgage payments. Some institutions allow an increase once a year; others, only once per term.

    The amount of increase allowed varies by lending institution and by type of mortgage, and can be as high as 25 per cent.

    For example: If your current mortgage payment is $1,000 per month, you may be able to increase it by $200 to $1,200 per month ($1,000 × 20% = $200). The extra portion of the payment is applied as principal against the outstanding balance of your mortgage and accelerates your mortgage repayment.

    The disadvantage is that this increase may be permanent (depending on the lending institution), and it may be difficult to bring your payments back to their original amount. You should therefore make sure that you can handle new, higher payments until the end of your mortgage term.

  4. Making Lump Sum Payments
    Most lending institutions will allow you to make lump-sum payments against the principal. Since these amounts are applied to the principal only, they reduce the outstanding balance of your mortgage.

    The amounts allowed vary by lending institution and by type of mortgage and can be up to 20 per cent, and sometimes more, of the original amount of your mortgage. If you borrowed $100,000 originally and your institution allows you to make lump-sum payments of up to 15 per cent, you will be allowed to pay up to $15,000 extra every year.

    You can usually only do this once a year, and your institution generally determines when it can be done.

    This pre-payment option is not cumulative. In other words, if you did not make additional payments on your mortgage this year, you will not be able to accumulate the percentage of pre-payment allowed and double your pre-payment next year. In the example provided, you would not be able to double your payment from $15,000 to $30,000, because you did not make a payment last year.

  5. Paying Extra On Your Payment Dates
    Most lenders will allow you to make additional payments on your mortgage, sometimes referred to as "double-up" payments. These extra amounts are applied to the principal only and reduce your mortgage balance, which helps you pay your mortgage off faster.

    Although there are some limitations, which vary by institution and by type of mortgage, you can generally double your normal mortgage payment on any payment date. Some lenders may let you decide how much extra you want to pay (i.e., they may allow "partial doubling") and when you can pay it. Your lender might even agree to automatically withdraw the money for the extra payment from your account each payment date.

    With double-up payments, the limits on your payment increases are not as strict as with the pre-payment option outlined earlier (100 per cent rather than up to 25 per cent), and you may stop making double payments at any time.