How to pay off a mortgage faster

Repaying your mortgage can take several decades, with a few contract renewals in between. Regardless of how long it takes you to repay, you need good budgeting tactics and strategies to make the best of your resources to pay off your mortgage faster. Whether your goal is to repay the mortgage faster or to maintain healthy financial habits, understanding how to pay off your mortgage faster and keeping a few tips in mind can help you achieve your goals.   

For most Canadian homeowners, the question often becomes whether to pay down their mortgage or put extra funds into long-term savings.

It’s important to assess your mortgage situation first. Once you have a written budget and have determined how much disposable income you have each month, you need to refer to your mortgage contract to determine how much extra you are permitted to pay down your mortgage each month and year without incurring a penalty (often called prepayment or early charges by lenders).  

Wanting to pay your mortgage sooner than later is an excellent goal to have, but understanding your financial situation and mortgage contract is equally as important. 

 Once you have determined your mortgage situation, you can explore a few ways to pay off your mortgage to get ahead.

Homeowners understand that a mortgage is not the only monthly payment that they’ll have, but it may be the most important one for some. As you create a financial plan, analyze your income and distribute it accordingly. If you have any areas that allow you to save money, you can put it towards your mortgage if your contract allows you to. 

In conjunction with proper budgeting, avoid additional debt, which includes managing your credit cards effectively and spending only on necessary items. More extravagant purchases will naturally occur occasionally, but be sure to factor that into your monthly budget so your finances are manageable. 

Most mortgages allow you to make additional payments, usually both monthly and annually. Making even one extra monthly payment has more effect on the mortgage amortization than homeowners might think. It will result in less overall interest paid and a shorter amortization period.   

Paying extra once in a while can be productive, but be sure to check with your lender to determine if additional contributions are penalized. When homeowners buy their house, they can choose between an open or a closed mortgage. Open mortgages let you freely make additional payments without any penalties. On the other hand, closed mortgages will limit the extra payments you can make without being charged a penalty or fee. For example, you may be able to make an extra 15%-20% of your regular mortgage payment plus an additional 15%-20% of the outstanding principal balance each year (check your mortgage contract terms and conditions). Even a portion of these percentages can save you thousands of dollars of interest and mortgage payments by shortening your amortization, sometimes paying off your mortgage years early.

Repaying a mortgage in full will take Canadians about 25 to 30 years to fulfill. During that time, lenders break down the amortization period into portions of time, called mortgage terms; these terms are associated with the interest rate you will pay. The term usually lasts anywhere from one to five years and outlines the homeowner’s interest rate, payment frequency, and payment amount. At the end of the mortgage term, you can decide to renew, transfer to a new lender, blend and extend your mortgage or refinance to withdraw some of the equity in your home which will outline new conditions for the following term.

A good broker will not only present you with the best mortgage rates and loan options but will also simplify the application process by going through the paperwork with you. Mortgage brokers may help you gather documents (such as Notice of Assessments (NOA) and bank statements) and submit complete applications to the appropriate lender.  

By acting as an intermediary between the borrower and the lender, mortgage brokers help streamline the process, ensuring all information is complete and accurate, reducing the chances of delays, and improving the chances of approval.

Many Canadians with larger properties will have spare living areas that they can rent out to help with the mortgage payment. The extra living areas, often referred to as mortgage helpers, may be as simple as a spare bedroom rented to a student, or it could be a self-contained suite in a house with its entrance. Sometimes, you can use the rental income to help qualify for a mortgage, or if you don’t need the extra income to make the regular mortgage payment, you can put some or all of it towards making extra payments.

Canadian homeowners are offered multiple ways to plan their mortgage payments and pay them off faster, but they don’t have to approach it alone. Many homeowners consult professionals such as mortgage brokers and financial planners to help them plan effectively.  

All the tips and strategies mentioned here are not financial planning advice, and you should consult with your financial advisor before implementing any of the strategies. If you are not working with a professional financial advisor, we can refer you to someone in your area. Send us an email at info@mortgagemaestro.ca to request an introduction.   

As previously mentioned, managing your mortgage doesn’t have to be done alone. By collaborating with a broker from Mortgage Maestro, financing your mortgage and assessing your situation will be an easier task. You can contact Mortgage Maestro to contact a broker as soon as possible. You can be sure they are licensed professionals who can provide support based on your financial position.