Our mortgages (if you have one) are by far the largest investment that you will make in your lifetime. At the ripe old age of 31 (I kid, I kid) Sean Cooper will be mortgage free, according to an article in the Financial Post recently. He lives in Toronto and owns a house worth $425,000 (he has about $150,000 left before he is mortgage free). At an age where most people don't even have mortgages yet because they can't get their act together to put together a down payment, Sean Cooper will have paid off his mortgage and be that much closer to financial freedom. Pretty amazing, isn't it?
Although most of us likely can't achieve that financial success at this age or pay off the mortgage at his age, there are ways in which we can pay our mortgages off faster so we can have that burn the mortgage bonfire party sooner… and be that much closer to financial independence and our own Findependence Day.
Being mortgage free is essentially freedom. Your monthly expenses are that much more manageable and without a mortgage to pay or large amount of monthly shelter cost, you won't need to work as much.
Here are 4 ways in which you can pay your mortgage off faster:
Accelerate The Payments
I currently have accelerated biweekly payments (it matches up to my paycheque every two weeks) on my mortgage and it has shaved about three to four years off the expected timeline. Instead of the usual monthly mortgage payment, if you accelerate the payment to every two weeks, or even every week, you will be able to pay down your mortgage much quicker. Alternately, some people max out the amortization (for example, a 30 year instead of 25 year) and then they pay down the principle with lump sum or extra payments, in which all of your extra dollar goes towards the principle instead of paying for interest.
Use Your Tax Refund
Instead of blowing your tax refund on a trip like most people do, you can allocate a portion of it to your mortgage. Most mortgages according to CBC.ca allow you to pay a lump sum payment of 10%, 15% or even 20% of the original principle each year without penalty. Check with your mortgage documents and plan to see how much you can pay off per year without penalty.
Related: How To Port A Mortgage
Round It Up
Another easy way to pay down the principle without feeling the budget pinch is to round up your mortgage payments. So instead of paying $1531.45 per month, round it up to $1600 per month. An extra $68.55 is not too difficult to find or scrounge up, you won't feel the pinch likely, but it makes a huge difference to your amortization and your mortgage.
Dump Anything Extra Into The Principle
Canadian Living suggests that you dump anything extra, like “found money” into the principle. If you get a raise, instead of inflating your lifestyle, put that extra money into your mortgage. If you get a bonus at work, instead of spending that money on a new bicycle, put it towards your mortgage.
Because the “anything extra” is “extra”, it doesn't hurt your budget when you don't see this money. It's like a bonus. A bonus towards financial freedom, right?
Personally, the only thing I have done so far is use accelerated payments. I should start dumping money to eliminate the principle, writing this post was a good reminder to do so. Better get on that!
If you don't believe me, check out the Financial Consumer Agency of Canada Mortgage Calculator Tool. It will tell you how soon you will be mortgage free depending on certain variables or prepayments. For example, a $1000 payment on a $180,000 mortgage saves you almost $600 in interest and allows you to be mortgage free 2 months earlier on a 25 year term.
Sometimes it's easy to forget the impact that an amortized interest has on the amount you are paying. Definitely makes sense to be aggressive to pay off the mortgage faster and be that much closer to financial freedom. Even with the current low interest rates, it still makes sense to pay down as much as you can, because once they raise the rates, you will feel the pinch (if you are in a variable mortgage of course).
Readers, do you pay your mortgage off faster? Which is your preferred weapon?