3 simple strategies to pay your mortgage off years faster
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As an educator, you know that education pays off. Especially when it comes to mortgage payments.
Yet there seems to be an education gap between Canadian mortgage holders and a few simple mortgage payment strategies that could save years in amortization, not to mention tens of thousands of dollars in interest.
In fact, according to Mortgage Professionals Canada, 64% of Canadians aren’t taking advantage of any kind of strategy to pay their mortgage down faster.
If you’re one of the 64%, we have one question for you: WHY?
Paying your mortgage off faster is a lot easier than you think.
It doesn’t require jumping up the pay grid or winning the lotto. All it takes is breaking free of the typical mortgage payment pattern (by ‘typical’ we’re talking about only making your ONE regular monthly payment for the remainder of the amortization).
Here are 3 simple strategies to break free of the pattern and pay your mortgage down faster:
Strategy #1: Switch to accelerated bi-weekly payments.
What a difference a few weeks makes—especially when you’re paying interest on a mortgage in the hundreds of thousands of dollars. So, instead of paying your mortgage on a monthly basis (I.e. 12 times per year), consider making accelerated bi-weekly payments (enabling you to pay your mortgage every two weeks for a total of 26 payments a year).
Here’s where the savings benefits of those accelerated bi-weekly payments come in.
Let’s say you have a $400,000 mortgage at an interest rate of 3.34% that remains steady over 25 years.
If you stick with the regular monthly payment option: Your mortgage payment would be $1,963 a month and the total amortization interest you will have paid at the end of 25 years is $189,035.
If you switched to accelerated bi-weekly payments: Your mortgage payment would be $982 every two weeks and instead of taking 25 years to pay off, you would be mortgage-free in 22.1 years—costing you $163,918 in amortization interest, a savings of $25,117.
Strategy #2: Round up your mortgage payments.
When it comes to paying down your mortgage, every dollar counts—literally.
This is where rounding up your mortgage payment to the nearest $100 can help to get you there faster, especially if you pair it with the accelerated bi-weekly payment option.
For example: Let’s say you decided to take the accelerated bi-weekly mortgage payment of $982 (as described above under Strategy #1) and round it up to $1,000. That’s only an extra $18.
Now let’s break that extra $18 payment down even further: $18 x 26 payments in a year = $368, which amounts to just $1.06 a day. That extra $1.06 a day would shave 4 years off your amortization and save you $29,857 on your mortgage.
Not bad for throwing a few extra bucks onto your mortgage payments, don’t you think?
Strategy #3: Make a lump sum anniversary payment.
Making an extra mortgage payment each year is another way to strip away at your amortization and save you interest. That extra payment doesn’t even have to be massive—it all adds up. However, you can maximize your lump sum anniversary payment by putting aside any and all extra income that might come your way in a given year. Everything from tax refunds and birthday money, to extra pay cheques and savings you discover by being smarter with your spending.
Example: Assuming any extra money you have enables you to make an annual lump sum payment of $500, in addition to your rounded up and accelerated bi-weekly payments (as mentioned in the examples above). Using this strategy you would then save an additional $34,856 on your mortgage.
So there you have it: Strategy 1 + Strategy 2 + Strategy 3 = paying your mortgage off years faster and reducing your interest payments.
Of course, the numbers provided above are just examples to show you the power of regularly putting a little extra money toward your mortgage. Your own savings could be even greater, depending on your interest rate, amortization, and total (mortgage) balance outstanding.
Want help implementing any or all of these strategies to pay your mortgage off faster? We’re here to help with that and so much more.
With over 45 years of helping education members with their mortgages, we can help you uncover ways to spend less and save more.
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