Seven Easy Tips to Help Pay Off Your Mortgage Quicker

Seven Easy Tips to Help Pay Off Your Mortgage Quicker

Mortgages in Canada are generally amortized over a 25 year period and more recently up to 40 year terms of repayment. Although a long amortization is normal, it doesn't have to take a mortgage borrower that long to pay off their mortgage. With a little bit of planning ahead, most mortgage borrowers can manage to pay off their mortgage easily in as little as ten years. How? Here are seven key tips, which if they're followed, can lead to mortgage freedom much quicker:

Tip #1 Make your mortgage payment each week, or every two weeks. One great strategy to pay off your mortgage in a shorter period of time is to opt to pay your mortgage each week, or even every other week. Both options lower your interest paid over the term of your loan and also result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage bi-weekly can reduce your mortgage amortization from 25 years down to 21.

Tip #2 When your income increases, increase your mortgage payments. If you get a 5% cost-of-living raise each year at your place of employment. If you live like you never got a raise, spending what you did before the raise, and you send that extra 5% of your income to your mortgage, then you will never miss the money and your mortgage balance will drop a lot faster. This is a very painless way of paying down your mortgage without feeling like you are sacrificing your way of life in any way.

Tip #3Make an RRSP contribution and pay down your mortgage with your income tax refund each year. If you're in the position where you get an income tax refund each year, use that money to put directly on your mortgage as an extra payment on the principle of your mortgage loan. You won’t miss the money, and your mortgage will get a nice reduction which will save you a ton of interest over time. You'll also have money in your RRSP so you'll have some cash to enjoy yourself when you have that mortgage free home

Tip #4 If you renew your mortgage at a lower rate, maintain the same payments. When you renew your mortgage and find that you are able to get a lower rate (like through a mortgage broker like myself) ignore the lower payment and continue to pay what you were paying before the new term took effect. The key to this stratagey is that all of the extra money paid will go towards the principle of your loan and once again you do not feel like you have to come up with extra money to make the extra principle payments with.

Tip #5 Round up you mortgage payments. Assume for a moment that your mortgage payment is $756 per month. You can very easily add extra principle payments on your mortgage by paying a more rounded number, such as $775 or $800 each month. Over time, by rounding up, the payments will lower your overall mortgage debt. I like seeing people utilizing this strategy in conjunction with tip #1.

Tip #6 Think about getting a variable rate mortgage. It has been shown that variable rate mortgages can save you money over time. If you can deal with the rate fluctuations, a variable rate mortgage is worth serious consideration.

Tip #7 Always use the services of a mortgage broker to ensure that you get unbiased advice and the lowest rate available.

Each of these seven tips are not complicated and the strategies may not seem like big money or time savers initially but over time when consistently applied you can save years off your mortgage.