3 Simple Ways to Pay your Mortgage Sooner
Do you dream of paying off your mortgage sooner than the standard 25 or 30 years? Now I know what you’re thinking, how can I possibly do that? The good news is that mortgage freedom doesn’t have to be painful. There’s an easier way to pay off your mortgage sooner besides winning the lottery.
Here are three simple ways to pay down your mortgage sooner. To show you how much money you’ll be saving, we thought it would be easier to use actual numbers.
In each of these examples, we’re going to assume a $500,000 mortgage amortized over 25 years at a rate of 1.99%
1. Accelerate Your Mortgage Payments
At most mortgage lenders, the default mortgage payment frequency is monthly. But those aren’t the only options. Almost all lenders also offer weekly, biweekly, and sometimes semi-monthly. While you can save some money by switching to any of those options since you’re making your mortgage payment more often, if you want to save the big bucks, it helps to change to accelerated weekly or biweekly.
With accelerated weekly or biweekly, you’re making the equivalent of 13 months of mortgage payments instead of only 12 months. There are only 12 months in the year, so how is this accomplished? This is done by paying a slightly higher mortgage payment amount.
Bi-Weekly vs Acc. Bi-Weekly
Instead of only paying $976 with a regular biweekly payment, you’d be paying $1,060 with an accelerated biweekly payment.
By doing that, you’d save yourself about $14,000 in interest and pay off your mortgage 2.5 years sooner in only about 22 years and 7 months instead of 25 years.
2. Make Lump Sum Payments
Another effective way to pay down your mortgage sooner is by making lump-sum payments. When you make lump sum payments, those go entirely towards principal, unlike a regular mortgage payment split between interest and principal.
For example, if your mortgage balance is $500,000 and you make a $2,000 lump sum payment, your new mortgage balance will be $498,000. It’s as simple as that!
I know what you’re thinking; most people don’t have a spare $2,000 sitting around. That’s why we like to use what’s called “found money.” Found money is money that you just suddenly come into. Examples include a bonus at work, inheritance, or a tax refund.
When you receive that money, instead of spending some of it on your mortgage, save yourself some decent money over the long-term.
If you plan to make a lot of lump-sum payments, look for a flexible lender. It may surprise you to hear that some lenders only let you make lump sum payments once a year, while others allow you make them throughout the year on any of your regular payment dates. The latter, not the former, will help you.
Assume you make just a $2,000 lump sum payment annually every year.
If you did that, you’d pay off your 25-year mortgage 2.3 years sooner and save yourself almost $13,000 in mortgage interest over the life of your mortgage. Not bad!
3. Pay Your Mortgage As If Rates are Higher
Economists always seem to be warning us to be prepared for when rates are higher. While it doesn’t look like rates will be going up anytime soon due to the COVID-19 pandemic, rates will inevitably go up one day from their record low, so wouldn’t you preferably be prepared instead of blindsided?
The government makes you qualify at stress test rates of 4.79%, so why not pay your mortgage as if rates are already that high? Instead of paying $976 bi-weekly, you’d be paying $1,286. You can do that by making extra lump sum payments of $340 every 2 weeks on your mortgage.
Monthly Extra Payments
Let’s see the difference by increasing 34% the bi-weekly payments.
If you did that, you’d pay off your 25-year mortgage 7 years and 9 months sooner and save yourself more than $43,500 in mortgage interest over the life of your mortgage. Even better!
The Bottom Line
Experiment with the Canadian Mortgage App and see how much money you could be saving. By doing any or all of these things, you can save yourself a ton of interest and enjoy mortgage freedom that much sooner. So, what are you waiting for? Put one of these into action today and be one step closer to a mortgage balance of $0.
Let us help you find the best mortgage for you.