You’ve purchased your home, your other debt loads are under control or paid off, and you feel as if you’re sitting pretty for your financial and retirement goals…what next? Most of the time a 25 year amortization is normal and a number of homeowners will take exactly that long to pay it off and be mortgage free. A growing number of homeowners, however, are putting their thinking caps on and realizing some of the benefits that can be achieved by paying that debt off sooner and being mortgage free far faster than they’d first intended.
So how are they doing it? Below we’ve outlined some of the easiest ways that you can pay your mortgage off sooner than you thought you might.
Accelerated bi-weekly payments
Accelerated bi-weekly payments are probably the most common way of reducing your mortgage, and most people looking for a faster way out of their home debt do opt for this choice. What it means is that instead of a once monthly payment (meaning you make 12 equal payments per year), you pay every 2 weeks which results in a total of 26 payments per year. Not only does this shave a few years off of your payment schedule, but it also reduces your interest paid; sometimes by tens of thousands of dollars.
Rounding up is one way to increase the payment on your mortgage without much more taken from your monthly budget, in fact, most people hardly notice the difference. How does it work? Whatever your mortgage payment is currently, take that amount and round it up to the nearest hundred. For example, if you pay $850 per month, try paying $900. It’s only an extra $50 per month, but multiply that over the years and you shave plenty of time from your schedule.
Throw extras at your mortgage
If you’re covering all of your bases right now with the income you’ve got, a raise is just icing on the cake. Use that icing towards increasing payments on your principle and you’ll be pleasantly surprised at how much more quickly that debt comes down. You can do the same with income from extra work on the side or even from windfalls from birthday money, Christmas money or even bonuses. Think about this scenario when tax time comes around – if you’ve contributed to an RRSP and are expecting a nice sum back from the government, multiply your benefit by applying that money onto your mortgage payment.
Lump sum payments
Check with your bank, but most will allow for one extra mortgage payment on the anniversary of your loan. This amount will be applied directly to your principle, reducing the interest you’ll be paying on the remainder.
Check the competition
Your bank probably sends you mortgage renewal papers or gives you a heads up in some other way to let you know that it’s time to sign papers again. Why not check around for what other lenders have to offer before signing a deal? If you find someone offering a better interest rate, at the very least take it to your bank to see if they’ll match it.