Blog by DOINA BIOLAN B.Comm

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PAYING YOUR MORTGAGE FASTER

Your road to mortgage freedom

Paying off your mortgage may be the best investment you can make. A survey conducted in 2013 by Canada Mortgage and Housing Corporation (CMHC) found that 68% of homeowners felt they could pay off their mortgage early. Last year a Scotiabank poll found that almost two-thirds of mortgage-holders agreed they could pay off their mortgage faster without impacting their lifestyle. Here are some ways to save some serious money and become mortgage-free faster. It only takes a few small steps and saves you thousands of dollars in the process.

Accelerate your payment frequency

This is popular. If you're making monthly payments on a $300,000 mortgage with a 3% interest rate, amortized over 25 years, it will cost you $125,920.44 in interest. By increasing your payment frequency to accelerated bi-weekly payments, you will shave nearly three years off of your amortization schedule, and save $16,058.57 in interest.

Round up your mortgage payment.

This is pretty painless. Every dollar counts when it comes to paying off your mortgage. If your accelerated bi-weekly mortgage payments are $543, consider rounding up to $600 instead. The extra $57 will save you thousands of dollars in interest over the term of your mortgage and you'll barely notice the difference in your monthly budget.

Refinance to a shorter-term amortization

You may be able to refinance into a mortgage with a lower amortization. Your payments will be higher on a 15-year loan, but perhaps not as high as you think, especially in the current low-interest environment.

Make lump sum payments

Adding just $1,000 extra to your mortgage per year will allow you to pay it off years sooner and, combined with accelerated bi-weekly payments, chip thousands of dollars off the interest you pay for your home.

A lower interest rate

With mortgage rates at all-time lows it doesn't hurt to negotiate a better rate. The difference between a 2.59% rate and a 3.2% rate adds up to thousands of dollars in interest over the remaining term of the mortgage.

Interestingly, the Scotiabank poll also showed that 21% of mortgage holders have not taken any steps to pay down their mortgage for the following reasons:

  1. Don't have available funds - that means they bought something too expensive for their budget
  2. Have other payment priorities - that is not always true, they may just think it is, they should be consulting their Financial Specialist  for advice
  3. Don't know what steps to take  - again, consulting their Financial Specialist is their best choice, instead of overthinking it .
MY TAKE ON THIS : you should be ready to pay until your mortgage is only 50% of your house value . This is the "safe spot" , should you ever need to access equity from your house. Once you are there, you can also start investing , as investments are making way more interest than the interest you have on your mortgage . When the interest is low, focus on negotiating with your bank reducing your credit card and line of credit interest and start to pay a little extra towards your debts .

FINAL CONCLUSION: always do all three : pay extra on your mortgage, invest and pay your debts. If all these are done correctly and in the right proportions, your financial situation will improve.

The freedom that being completely debt-free brings is a dream for many Canadians. If you're unsure of what your next step should be, call me. Together we can review your mortgage, look at your financial picture and devise a mortgage-reduction plan that works for you.

DO NOT BE AFRAID TO ASK FOR ADVICE! Sometimes, timing is everything!