For most Canadians, their mortgage is the largest debt they manage. Paying this off sooner can help build equity and save thousands in interest. Fortunately, there are several ways to pay down your mortgage quicker and reap the benefits. Here are some of the most common methods.
Increase Payments. The most obvious way to pay off your mortgage sooner is to pay more regularly. This could mean paying biweekly, increasing your monthly payments, or even making an extra house payment quarterly or semi-annually.
Use Windfalls. Wherever possible, yearly bonus checks, tax returns, and inheritances can be put towards your mortgage and take off a good chunk, reducing the amount you owe. If this is done every year, the savings will add up exponentially.
Refinance. Refinancing your home for a lower interest rate is only half of the equation. Shortening your amortization from a 30-year loan to a 15-year loan can potentially save you tens of thousands in interest payments.
Downsize. This is a great option for homeowners who are looking to move. Selling your current home and using that money to purchase a smaller, less expensive place can dramatically reduce your monthly mortgage payments and shorten your amortization.
Before deciding on which method to proceed with, be sure to double-check your mortgage terms and your financial situation. Some mortgages force you to pay prepayment fees or other important conditions. Evaluate whether your terms make prepayments worth the extra cost. Your financial situation will be the ultimate indicator of which, if any, method you should choose. For example, if you can’t comfortably afford to increase payments because you don’t have the extra cash, don’t do it. Remember that your mortgage may be a large amount but it is a relatively low-interest debt. Do not send yourself spiralling into high interest just to pay off your mortgage sooner.
If you’re looking to refinance or otherwise alter your mortgage to pay off your loan sooner, our team of brokers can help. Contact us today for a consultation!