Posted by John Doe
For most people, their mortgage is the biggest loan they will ever take out. If you have a mortgage, surely you’re looking forward to the day that it is completely paid off, and you truly own your home. For many homeowners, that day may feel too far away to even imagine. Fortunately, there are some ways to pay off your mortgage faster. These may be small things that add up over time, but could take years off your mortgage loan.
Is it always worthwhile to pay your mortgage off faster, even if you have the money? You may be better off putting extra money into a higher interest retirement or investment account, where it can earn more for you. Having more home equity can also hurt your chances of receiving financial aid if your children are pursuing higher education.
If you are in a fixed rate mortgage, then paying off your mortgage early may result in an Early Repayment Penalty. Before you think about paying your mortgage off faster, make sure doing so will not subject you to any penalties or added fees.
To know whether paying your mortgage off earlier is right for you, the best thing to do would be to speak to a mortgage professional.
Once you’ve decided that you do indeed want to pay your mortgage off faster, here are some tips to help you get it done:
- Pay More
The most obvious answer! By adding more to your monthly payments, you can cut down the time it takes you to pay off your mortgage.
For example, if you divide your monthly principal and interest by 12, and add the amount you get to your monthly payment for a year, you will effectively be paying 13 months of your mortgage in 12 months.
If you are deciding to add more to your monthly payments, make sure to speak to your mortgage servicer to make sure the payments have been properly applied, and check your statements.
If you refinance a longer term mortgage for a shorter term one, you can get lower interest rates, and pay your mortgage off faster. For example, if you get a 30-year mortgage and, five years in, refinance for a 15-year mortgage, you will pay off the mortgage 10 years earlier.
Refinancing can be tricky, however. There is an application process, as well as closing costs that will include legal fees, and appraisal fees. And, despite having lower interest, your monthly payments will be higher, so if you are thinking of refinancing, make sure you have the extra cash to do so, especially as once you do refinance, you’re locked into the new mortgage. The best thing to do if you are thinking of refinancing would be to seek the guidance of a mortgage professional. They can help you decide if refinancing is right for you, and help you through the process.
- Make An Extra Payment
This option is similar to the first one, in that your aim will be to make 13 payments in 12 months. Rather than adding 1/12 of your payment to each monthly payment, you would save that portion and pay it all at once in an extra payment.
By making an extra payment each year, you can save a significant amount of interest, as well as pay your mortgage off years earlier.
- Add Your “Extra” Money To Your Mortgage
Sometimes we get money that we didn’t expect. This could be an inheritance, a work bonus, or a tax refund. Though the impulse with this “extra” money is usually to spend it on something you wouldn’t have been able to afford otherwise, you could also put some or all of it towards your mortgage.
If you find yourself in a position where you have extra money to spend, consider making a lump sum payment towards your mortgage. This can save you loads of interest, and take time off your mortgage.
Make sure to be clever about budgeting, however. Even though the money may feel like an added bonus at the time, expenses can also be unpredictable. You don’t want to throw all your money at your mortgage and then realize down the road you could have used it better elsewhere. Plan your financial future, and maybe just put a portion of your “extra” cash towards your mortgage. Having savings you can access in case of an emergency never hurts.
Before deciding to take steps towards paying your mortgage off faster, make sure to speak to a mortgage professional. Mortgage loan agreements can be complicated and difficult to understand. The last thing you want to do is try to pay your mortgage off faster, only to be penalized for it later on. Overall, your goal should be to pay your mortgage off faster, while also saving as much interest as possible. If your money could work harder for you by being invested elsewhere, or put into an RRSP, that may be a better financial option. A mortgage professional will help you answer any questions and address any concerns, as well as guide you to the best solution for you and your money.