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Would you like to maximize your mortgage to pay it off faster? Um, yes!
Anyone with a mortgage should be thinking outside the box when it comes to mortgage debt.
Some people aren’t as financially involved with their mortgage as they should be.
Many people move into their first home and are so busy fixing it up that they quickly forget about their mortgage.
Although it’s nice to have a renovated home with the latest decor, if you want to maximize your mortgage to pay it off fast, there are things you may have to do without.
Let me show you how some homeowners are losing money by ignoring their mortgages and spending money on things that can wait.
Take Advantage of Shaving Years Off Your Mortgage
If it isn’t broke, don’t fix it is the motto many mortgage-free homeowners would tell you.
That’s because these homeowners either invested extra money or put it towards their mortgage.
Many banks don’t explain much about “best practices” with mortgage repayment.
One of the simplest is paying your mortgage weekly or biweekly to speed up repayment.
However, beware that some banks offer non-accelerated weekly or biweekly, which do nothing to pay back your mortgage faster.
Mortgage Repayment Set-Up Example
Follow this simple system when setting up your payments:
- If you are paid every two weeks, pay your mortgage biweekly acceleratedly.
- If you are paid any other way, pay your mortgage weekly accelerated.
The reasoning is simple: say your mortgage is $1000 per month, paying biweekly accelerated puts more onto your mortgage in a year ($500 x 26 = $13,000 vs. $1000 x 12 = $12,000), same with weekly accelerated ($250 x 52 = $13,000).
More Ways To Pay Your Mortgage Faster
So, what else can you do to pay your mortgage down faster apart from your mortgage payment?
Making extra “prepayments” will help, but you may be surprised how much impact they can have.
Related: How we paid our mortgage off in 5 years
First, check with your lender to confirm how prepayments are allowed.
Some lenders only allow the prepayment on the mortgage anniversary date each year.
However, other lenders will enable them to be taken at any time.
Despite that, the borrower must not review the “free” prepayment allowable with their lender.
Once again, check with your lender; most are 10 – 15% of your original mortgage balance, some more, some less.
Related: Compare the BEST Mortgage Rates in Canada
Mortgage Loan Comparison
If your lender is easygoing, make a regular extra payment every month or quarter based on what your budget allows.
However, if you have an extra $100 or more (the general minimum prepayment allowed), advise your lender and make this an additional payment.
Use the Mortgage of Canada Calculator to compare your numbers.
It makes a difference; take a look at this comparison:
Mortgage Calculator
On this $300,000 mortgage amortized over 30 years, simply paying your payment on biweekly accelerated drops it down to 26.3 years, and paying an additional $100 per month (or $300 per quarter) drops it to 23.5 years.
- Prepaying more will knock the mortgage down even faster.
So, what else can you do to get rid of your mortgage sooner?
Stay Involved
Most lenders will not contact you when it makes sense to break the term of your mortgage and move into a lower rate.
Just because you took out your mortgage a year or so ago didn’t mean you have to stick with it regardless.
Related: How we paid off our mortgage in 5 years
Depending on your lender, how they charge penalties, and the current mortgage rate environment, it may make sense to pay the fine (and even include it in the mortgage) and move to today’s historically low rates.
I’m biased, but a good Mortgage Broker can efficiently run the numbers for you and let you know if it makes sense to take a break.
With today’s small fluctuations in fixed rates, you may be surprised how much the penalty can drop when rates go up, making it more economical to change.
Once you decide, take advantage of the lower rate by keeping your payments at the same level (or higher if you can afford to) to maximize the rate savings.
We would all agree that it is not about “if” mortgage rates will increase but “when.”
With this in mind, we wanted to help our clients and others pay their mortgages down faster and came up with what we call “Money in Your Mortgage” or the “Inflation Hedge Strategy.”
It is a software program we have written built to make the most of our low-rate environment and ensure you don’t suffer payment shock in the future.
Mortgage Optimization
What is payment shock?
It’s what many of our American friends suffered when their teaser rate mortgages in the US came due, and their payments skyrocketed, causing many foreclosures we are all too used to seeing there.
This program is pretty simple, but in a nutshell, whenever the rate at your lender goes up, we email you to remind you to increase your payment accordingly.
By the end of your term, you are paying the same amount you would be, and you won’t be shocked.
You will have also made extra payments on your mortgage, thus paying it down faster and maximizing your low rate.
We call this Mortgage Optimization.
We feel strongly about this as Canadians need to do everything to help each other not suffer through the US.
Discussion: What have you done to shave years off your mortgage?
Related Posts
- What happens if I have a late mortgage payment?
- How to test Budget a Mortgage BEFORE buying a home
- Everything you need to know about porting a mortgage in Canada
- Killing your mortgage in 3 easy steps
Post Contribution: Michael Anthony Lloyd is a Mortgage Expert
Thanks for your article Mr Anthony. I can see it would be wise to sit down with the bank that holds our mortgage to see if we are on the accelerated payment you refer to. We are paying weekly with the idea that this will pay off the mortgage faster but if that is not the case perhaps we need to review this. Again thank you Mr. Anthony and Mr. CBB for inviting this post 🙂
Hi Sandy,
Thanks for your comment. We pay our mortgage weekly as well accelerate actually. We also put down extra on the principle each month as our term allows this.
Michael will be around to comment on all posts if you have any questions.
Thanks for stopping in at CBB …
Happy Easter
Mr.CBB
This is very interesting to know. I had no idea about some of these steps in paying off your mortgage quicker. I will have to look into when & how I can make extra payments as well. Thanks.
Thank you Michael for this wonderful article! I pay accelerated biweekly but had no idea how much of a difference it makes!
Very helpful article on mortgages!
Each house I have owned was setup with weekly accelerated payments.
I always used a 5 year fixed rate, which looking back, probably wasn’t the smartest. Twice I decided to sell prior to the end of the 5 year period and twice I paid large penalties based on the current interest rates.
Glad you are finding it useful! It is really important to use the benefits available to you in your mortgage. I strongly urge you to confirm you are on an accelerated payment plan (weekly or biweekly), many in the branches aren’t even sure of how this works. Most original mortgage documents will show the monthly payment, take that amount and split in 1/2 for biweekly accelerated, in 1/4 for weekly accelerated. This alone has a huge impact. I think with this low rate environment we are in it is really important to get used to paying more and benefit from this.
Thank you for the informative post.I’ve never had a mortgage, but i’ll definitely remember your tips. I love when topics make me think about things I’ve never thought of before. Hopefully it won’t be too long before we buy a house! Have a great weekend.
Well just be ready for the ‘TO DO LIST’ when you do buy a house mate.. and it NEVER ends! You have a good weekend as well.
I went though this, until I was mortgage free.
There is no greater feeling!! No one owns you!
Folks sometimes talk about investing you extra money & you may earn, more than you save, by paying off a mortgage. This fails to take in to account one major factor…the psychological mpact of knowing you are mortgage free,. YOU own your dwelling. Nobody can take it from you. Do not discount this simple, but powerful benefit.
Little off topic, but may help someone focus, on the end result!
You are 100% correct about the psychological impact and that’s what we are starting to feel knowing we can pretty much pay our’s off if we wanted to shortly. Once that is done the world is in our hands and we can do whatever we need to with our NET incomes.
How long did it take you to pay off your mortgage? How old were you? If you don’t mind sharing, if it’s personal don’t worry just nosey that’s all lol. I like to learn from others who have the same mindset as I do.
Cheers
I was determined to be mortgage free. I became so, at 40. I am 46.
…and it feels gooood!!
I bet it does… hopefully one day soon for me! Happy Easter Mate!
I have been talking about “Mortgage Freedom Day” a lot with my clients, as really that is the goal. It is never easy (nothing worthwhile ever is), but with commitment and a plan anyone can reach it if they want to.
I just wrote a post about my mortgage renewal process. i long to be mortgage free and we pay biweekly to accelerate that. We also put a portion of our income tax returns on the mortgage and make extra payments throughout the year when we can. Mortgage Freedom Day here i come!!!
That’s our goal and we are so close about 20k off right now unless we dip into our tfsa and we should be ok.. but we don’t want to be drained of our liquidity… so we will build up our Emergency Savings until then… Mortgage Free will be the best day ever! Mr.CBB thanks for posting!
Thanks for sharing this post. It was very informative. I actually pay monthly payments, but after reading this article, I am definitely going to look into paying bi-weekly..wow, it makes all the difference hey?
Five years ago, I determined to pay down my HELOC and get off the hamster wheel. I started biweekly payments and took advantage of prepayments monthly. In five years I have roughly 1/3 left to go out of the original amount which means I’m paying it off in half the original timeline. We’ve had job loss, renovations, car replacement twice, emergencies galore but here I am. Still on track!