This post looks at how to pay off your mortgage faster. One of the biggest milestones on the road to financial freedom is owning your own home. Yet for most people, the reality is that being mortgage-free is some far off dream in a distant future. In this post, I want to look at 3 easy approaches that help us pay our mortgage off faster.
Why Pay Off Your Mortgage Faster?
For the average person, their home is by far their largest asset and being mortgage free is a major life goal. Also, for many people (ourselves included) the largest chunk of the monthly budget goes toward mortgage payments. In Canada, mortgage interest on our primary home is not tax deductible so paying it off always ranked high on our list of financial priorities. That is, of course, only after paying off any high-interest consumer debt that we may have had. Having that mortgage paid off offers all kinds of advantages like freeing up that cash for other things such as investing.
As we sit at record low interest rates there really is no better time than now to pay off our mortgage. Some would argue that, these days, people get more bang for their buck by investing the money. We believe that, for our situation and probably for most other people too, paying off the mortgage has huge benefits such as lowering the monthly overhead and providing a family with greater financial security. To that end, we have been aggressively paying off our mortgage for years now and we’re happy to say that we should be mortgage free in less than 10 years. It takes a lot of determination to pay off a mortgage faster but it can be done. Here’s how we are doing it:
1 – What’s your payment frequency? Did you know that by adjusting your payment frequency you can save yourself thousands of dollars over the life of your mortgage? If someone is making monthly mortgage payments they can save simply by having their payment frequency changed to bi-weekly or even weekly payments. Most people are paid on a bi-weekly basis so it may be easier to set it up this way.
Moving from monthly to bi-weekly payments saves us money in the long run because it’s like making an additional monthly payment every year. We prefer weekly payments because it has a very slight advantage over the bi-weekly option in terms of paying less interest over the life of the mortgage. More importantly though, because we are aggressively paying our mortgage off, the weekly payment option allows us to make lump sum payments every week if we so choose.
2 – Accelerate your payments. When we chose to accelerate our weekly mortgage payments our amortization period went from 25 years to 22 years. Some mortgages allow for annual increases in the scheduled mortgage payment amount. We have our mortgage through PC Financial and they allow us, on an annual basis, to increase our weekly mortgage payment by an amount up to 20% of the original weekly payment. This extra money goes straight toward paying down the principal and is something that we took advantage of whenever we received pay raises. This will definitely help pay off your mortgage faster.
3 – We’ve found that lump sum payments really knocked our principal down. Again, at PC Financial, every year we are allowed to put down lump sum payments up to 20% of the original mortgage amount. For example, if our original mortgage amount was $200,000, then every year for the life of the mortgage we can put down $40,000. This is certainly one option that we took advantage of whenever we came into a cash windfall of some sort or when we received our tax refunds. The minimum amount for a lump sum payment is $100 so we found that we didn’t need tons of money to throw down to take advantage of the lump sum payment option.
Of course, with the monthly budget already stretched, not everyone can follow the steps outlined above. However, if there is anything to take away from this post it’s that the easiest thing we can do to help get ahead on paying off our mortgages is changing the frequency of our payments to either a bi-weekly or weekly schedule.
As for us, we’ve tried to take advantage of all three of the options discussed above. We make weekly accelerated payments that we try to increase each year if we can. We also make lump sum payments whenever we can. The point is that every little bit helped get us closer to our end goal of being mortgage-free. Now that we have the end in sight, we like to credit all of those small payment amounts that, over time, really added up to huge savings for us and helped us reach our goal faster.
If you’re interested in running your own scenarios, we found this great mortgage payoff calculator at Mortgage Intelligence. Check out the link below
Thanks for reading this post on how to pay off your mortgage faster.
Photo Credit: Image courtesy of Stuart Miles / FreeDigitalPhotos.net