Most mortgages are paid over 25 years, but we have some tips to help you pay your mortgage off faster. Reducing the number of years you make mortgage payments can add up to big savings.
There are several ways to “pay down” your mortgage and get out of debt faster.
1. You can increase your payment amount when you arrange your mortgage, or at any time during the term. This allows you to pay down your principal faster.? For example, if you increased your mortgage payment amount by $170 from $830 to $1,000 you could save almost $48,000 in interest over the entire amortization period of your mortgage. You could also own your home about 8 years earlier. Look at the amortization schedule for your mortgage to see how much of your payments are going to principle vs. Interest
2. You can make payments more frequently, which saves you money in interest charges over the long run as it allows you to pay down your principal faster.?For example, if you made accelerated bi-weekly payments of $415 instead of monthly payments of $830, you could save almost $27,000 in interest over the entire amortization period of your mortgage. This would allow you to own your home about 4.5 years sooner.
3. You can use your pre-payment privilege to make a lump-sum payment. A lump-sum payment is applied directly to your outstanding principal if there is no outstanding interest owing. This saves you money over the course of your mortgage.2?For example, if you made a $1,000 lump-sum payment, you could save almost $28,350 in interest over the entire amortization period of your mortgage. This would allow you to own your home about 4 years sooner.
You can pay as much as possible at renewal. Most Mortgages become open at renewal. This means you can pay as much as you want on your mortgage before you renew. For example, if you chose 5-year, fixed-rate terms, and made a $10,000 lump-sum payment every time your mortgage came up for renewal, you would save about $37,481 in interest over the entire amortization period of your mortgage, allowing you to own your home about 6 years sooner.
Also, a good idea when you do your renewal. Make sure to amortize your new term over the remaining time you planned initially on paying your mortgage off. i.e. if you have been living in your home for 5 years and you initially amortized the mortgage over 25 years, you will now want to amortize the balance in your new 2nd term, i.e. 20 years. Otherwise you will continually be starting new 25 year amortization terms and your mortgage will never be paid off.
Not a get rich quick scheme, but it works!