A “how to” on how to pay your mortgage off sooner than what your contract says you can:

Updated: September 21, 2009

A "how to" on how to pay your mortgage off sooner than what your contract says you can:

Did you know that if you were to just make simple monthly payments throughout the life of your 25-year mortgage, you'd end up paying more than DOUBLE than your original purchase price over time? Even scarier: if you were one of the ‘lucky' ones that was able to catch a 40-year amortization, you'd spend around THREE times your original purchase price?

Don't believe us? Check out our monthly mortgage calculator and see for yourself!

Here are some effective ways to pay off your mortgage sooner, build equity faster and save thousands in interest.

  • Change your payments. Simply increasing your payment frequency to bi-weekly or weekly costs nothing and can save thousands of dollars over the life of your mortgage. If you can afford to pay a little extra, consider accelerated bi-weekly payments— this will make the largest ‘dent' in your mortgage over time for two reasons:

a) There are 52 weeks in a year; divide this in two (bi-weekly) and you'll get 26 payments per year. This will let you squeeze in two more payments than a semi-monthly (12 months x 2 payments per month = 24 payments) frequency.

b) Because you're paying more frequently, you are actually fighting the compounding of interest over time, therefore working towards paying off both mortgage interest and principal a bit faster every two weeks.

  • Make lump sum payments which can realize savings several times as great over the life of your mortgage. Depending on what your mortgage contract allows for, you may be able to throw in lump-sum downpayments between 10%-20% of your mortgage's ORIGINAL principal balance each and every year. *technically* (and we've only seen this done in the past 10 years), you could pay your whole mortgage off within 4-5 years.

  • Re-read your mortgage contract. If it's been a few years, you may be a bit fuzzy on other ways that you can pay down your mortgage: annual double-up payments, monthly payment increases, etc… This could help you pay things down faster as well!

  • HELOCs and All-in-one mortgage. Instead of making extra payments, consider switching to a mortgage that pays off the principal faster without costing you anything more. Some HELOCs act like an All-in-one mortgage: they combine a line-of-credit mortgage with a daily chequing account to reduce interest costs. This could help you and your family pay off your mortgage in as little as half the time, without changing your spending habits. How does it work? Your paycheque gets deposited into the all-in-one account and pay bills as you normally would. While you're not using your money, it's used to reduce your daily loan balance. Over the life of the loan, this can save hundreds of thousands of dollars in interest! What's more: you always have the HELOC in place after the fact so that you can purchase more cash-flowing investments for your retirement or a second home!

To help decide which of these options is the best way for you to become mortgage-free sooner, please contact us for a no-obligation review of your own personal situation!

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