How to Pay off a Mortgage Sooner
For a lot of home owners, the number one question to ask when it comes to property is “How can I pay off my mortgage as fast as possible?”
Like all periodic payments, we’re always looking towards the last mortgage payment and to claim full ownership of your property. By owning your home outright, you have greater flexibility and financial stability to focus on other monetary goals such as saving for retirement or putting funds aside for your child’s college tuition.
The good news is, it’s really not that hard to pay off your mortgage as soon as possible. Unlike financing other items, the terms and conditions are by-law clearly presented to you. That means, no ridiculously high APR’s to be paid off if you miss a payment, and no accumulating penalty interests that makes you wish you would’ve rented instead.
Tip #1: Frequent Payments
Make regular mortgage payments on a more frequent basis. This helps save you interest and is a big step towards becoming mortgage-free as soon as possible. By choosing bi-weekly or weekly payments rather than monthly payments, you will be paying off the interest portion of your mortgage much faster than otherwise.
Tip #2: Shorter Amortization Periods, Larger Payments
When possible, choose the shortest amortization period and the largest payment amount you can afford. Slightly higher payments will quickly become a routine budget item and can help take years off your mortgage.
Tip #3: Increase Your Payment Amount Whenever Possible
Increase your payment amount when you can: If you’ve had a mortgage for a while, you’re likely used to the routine of making regular payments. Now might be a good time to consider if you could afford to increase your payment a bit. Also, whenever your household income rises (eg. salary increase, new job, etc.), consider increasing your mortgage payment at the same time.
Tip #4: Make Lump Sum Payments
Make a lump sum payment whenever possible. Take advantage of the prepayment privileges on your mortgage to make an annual lump sum payment against your mortgage. Depending on the options you select for your mortgage, you can choose to repay up to 10%, 15% or 20% of the original principal amount of your mortgage at any time during each year of the term as a lump sum. Remember, even small amounts can make a big difference in the long run.
Tip #5: Do Not Lower Your Regular Payments!
At renewal, if your interest rates have decreased, keep your payments the same. When you renew, your principal balance is probably less, and your renewal may indicate a lower payment amount if rates have dropped. If that is the case, then increase the payment to what you were paying before. This extra amount will be applied directly to your principal, helping you pay off your mortgage faster.
Tip #6: Diversify Your Mortgage
Consider mortgage options that can provide savings and flexibility. Just as you would diversify your investments, you can also mix and match your mortgage terms and choose from fixed and variable rates.
For example, many allow you to combine the features of fixed and variable rates to take advantage of potentially lower short-term rates and also protect against future rate increases. Similarly, you could combine a short-term fixed mortgage (eg. one-year term) and a longer-term fixed mortgage (eg. five-year term) to create a mortgage solution that is a blend of both.