Pay your Mortgage Down Faster


Even with a substantial downpayment, the purchase of a home means that you’re in it for the long haul. The most common amortization periods in Canada are 20 or 25 years. This means that your monthly payments have been calculated in such a way that in 20 (or 25) years, the full amount will be paid off. So, if you opt for a 25-year amortization period, your monthly payments will be significantly lower than with a 15 or 20-year amortization period. Why, then, doesn’t everyone purchase a home and opt for 30, 35 or even a 40-year amortization period in order to lower their monthly payments? For a few reasons, the number one being that in Canada, as of July 2012, the maximum amortization period allowed was reduced from 30 to 25 years. But there are a few other good reasons why paying off your mortgage as quickly as possible is in your best interest (no pun intended).

Typically with a 25-year commitment, a mortgage is compounded with hundreds of payments to slowly reduce both your principle loan as well as interest charges. You can expect interest-heavy payments for the first five to seven years as your bank makes lending you all that money worth their while.

Here are some simple ways to pay down your mortgage faster and save money in the long run:

Bi-weekly is best – Opting for an accelerated biweekly payment schedule will not only allow you to make 26 payments a year, it will also reduce both your interest rates and principle amount faster. Lenders may charge you an additional fee, but this is money well spent.

Round it up – Homeowners are surprised to learn that a hypothetical increased payment of $1,000 instead of $830 could save up to $48,000 over the course of the mortgage. That’s nearly eight years of payments! Another popular option is the anniversary payment. Depending on your lenders stipulation, saving this extra money for a yearly lump sum payment is a great way to celebrate your purchase while significantly decreasing your mortgage.

Increase your payments – Putting aside unexpected income towards a lump payment at the time of your mortgage renewal is an easy way to pay your mortgage down faster. Bonuses, raises, gifts and overtime earnings are extra money, which should not affect your budget. As your income increases, apply these earnings to your mortgage, instead of your lifestyle.

Know your stuff – Talk to your lending institution occasionally and stay informed. Keeping up-to-date with interest rates is an easy way to responsibly manage your mortgage.

Jennifer Birch

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