Posted by John Doe
The majority of Canadians will have to deal with a home mortgage at some point in their lives. With many Canadians struggling financially, many are turning to financial advisors in order to devise more
Put Extra Money Towards It
The first step to paying off your mortgage quicker is to put more money towards it. Depending on the mortgage contract that you signed, you may be able to make a lump-sum payment to pay it off quicker and/or increase the amount of your regular payments if your budget allows for it. The aforementioned mortgage clause is referred to as a prepayment privilege or simply prepayment, so try and take advantage of such an option if your mortgage contract allows for it.
If you are unable to significantly increase the amount that you put towards your mortgage every month, then you don’t need to worry. Even increasing your mortgage payments by a small amount every month will quickly add up and allow you to pay it off sooner than initially expected. Also, depending on your mortgage contract, you may only be able to increase the payments by a certain amount.
The amount will be written in the terms and conditions section of your mortgage contract, so it is always important to read the contract carefully before signing it. For instance, if you exceed the amount outlined in the prepayment privilege section, then you will likely have to pay a prepayment mortgage penalty in Canada, which may significantly hinder your goal of paying off your mortgage faster.
Be Confident, But Not Reckless
Please ensure you are confident that you will be able to continue making the increased payments every month until the end of the term. For instance, you may decide to increase the payment to the maximum permissible amount, but then fall ill or suffer a sudden job loss. In the majority of cases, you will not be able to lower the monthly amount until the end of the term. So if you decide to put some extra money towards your mortgage, you should ensure that you have a nest egg large enough to handle the increased monthly payments. If in doubt, go over your mortgage contract again or contact your mortgage lender to find out what prepayment options are available to you.
Make a Lump-Sum Payment
Another way to reduce the outstanding balance on your mortgage is to make a lump-sum payment. The lump-sum payment will be paid on top of your conventional mortgage payments. Again, the amount of the lump-sum payment will be determined by the unique terms and conditions of your mortgage contract and its associated prepayment privileges. As such, if the lump-sum payments that you wish to make exceed the allotted amount, then you will have to pay prepayment mortgage penalties. The good news is lump-sum payments can be made on certain dates stipulated in the contract, but can also be made before the end of the term.
Keep Monthly Payments the Same When it Comes Time to Renew
In certain cases, you can take advantage of a lower interest rate when it comes time to renegotiate or renew your mortgage. As such, you may be able to reduce the actual amount of the payments that you make each month. In other words, if you opt to keep the regular payments the same as before, then you will be able to pay off your mortgage sooner as well. For instance, let us imagine that you decide to renew your mortgage after a five-year term, and the new interest rate drops from the initial 5% to 4%.
In this example, you were expected to make a minimum payment of $2,036 a month prior to the mortgage
Select An Accelerated Payment Option
If your budget allows for it, you may want to consider an accelerated payment plan, whereby you make your mortgage payments every week or bi-weekly instead of monthly. The biggest advantage of accelerated payments is that you’ll end up saving on interest charges. Moreover, by choosing an accelerated payment option, you will be making the equivalent of one extra monthly payment annually. As such, you will end up paying off your mortgage quicker, and will also save a significant amount of money that would have gone toward interest charges. Again, mortgage penalties are an issue that many unsuspecting Canadians will have to deal with if they are not careful, so please contact your mortgage lender if you have any doubts.
If you would like to learn more strategies to help you pay off your mortgage quicker, or would like to learn more about how mortgage penalties work in Canada, then please contact us at 1-866-417-8805 for a quote and consultation. You can also learn about our various mortgage options by perusing our website. Over 100,000 people avail themselves of our services every month, and we are proud to be Canada’s mortgage authority. Take advantage of today’s special rate for fixed and variable five-year mortgage terms or compare rates on our website. You can also use our multiple mortgage calculators to help determine the right option for your unique financial needs.