4 Ways to Pay your Mortgage Off Faster

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.

Related: Mortgage Broker vs Bank Mortgage Specialist?

Here are 4 ways in which you can pay your mortgage off faster:

Accelerate The Payments

4 Ways to Pay your Mortgage Off FasterI 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?

Related: 4 Reasons Why You Might Not Want to Pay Down Your Mortgage ASAP

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?

15 Comments

  1. seanc0x0 on November 12, 2014 at 9:01 am

    We just switched our mortgage payments from $1050 a month to $600 every two weeks. That took the remaining period on the mortgage from 24 years to 17 for minimal ‘hardship’. The tricky part was getting our financial house in order in other ways that we can handle the bi-weekly payments while getting paid monthly.

    As far as found money etc, I don’t see the value in that at the moment. My mortgage rate is 2.95%, so I’d rather put the windfalls into savings where they’re making more than that.



  2. Michelle on November 12, 2014 at 9:44 am

    While we’re not trying to pay our current mortgage fast, we will most likely have this goal with our next home that we plan on buying somewhat soon. Our plan is to dump anything extra after we’ve saved for retirement into our mortgage.



  3. Money Beagle on November 12, 2014 at 12:53 pm

    I always thought a good strategy would be that if you get a raise, you bump up your payment by the percentage of your raise.



  4. Kyle on November 13, 2014 at 11:36 am

    Makes sense to me MB. If you could live on the former wage/salary it would make sense that resisting lifestyle inflation would allow you to make some great gains right?



  5. Kyle on November 13, 2014 at 11:38 am

    A lot of folks make good headway with this strategy Michelle. You can do the classic “two-birds-with-one-stone” strategy too and use the refund from the retirement savings (assuming they are RRSP-related) to pay off the mortgage faster right?



  6. Kyle on November 13, 2014 at 11:39 am

    That’s similar to my personal strategy Sean. I’m not rushing too pay off my mortgage super quickly, but at the same time if someone isn’t quite as risk tolerant as we are or isn’t confident in handling their own investments, there is nothing wrong with paying of a debt on which interest rates could rise fairly quickly going forward – it’s a tax-free return on the investment after all!



  7. Jonny on November 14, 2014 at 1:22 pm

    I’m a HUGE supporter of the tax refund payoff. A lot of people are totally unprepared for this refund if they have invested in their RSP’s, so it’s usually just bonus cash!
    I have my mortgage amortization schedule in excel and it’s cool to plug in a potential extra principle payment. I salivate when I see the interest savings!



  8. Sean Cooper, Financial Journalist on November 14, 2014 at 9:47 pm

    All great strategies. My strategy is to work hard and apply every spare penny against my mortgage. Who wants a mortgage hanging over your head for 25 years when you can pay it off in less than 5 years? I busted my tail in university, so I might as well work hard a few more years to enjoy mortgage freedom the rest of my life.



  9. Sean Cooper, Financial Journalist on November 15, 2014 at 7:35 am

    So sorry, I forgot to say thanks so much for the mention and link to my Financial Post article. I really appreciate it!
    Here are a couple more articles your readers may find interesting:
    www.moneysense.ca/retir…dependence
    business.financialpost.com/2014/…-bloggers/



  10. spiffikins on November 15, 2014 at 11:58 am

    I’ve been putting my tax refund toward my mortgage principal – the first couple of years, I put the whole amount towards it, and this past year I kept a bit for my vacation fund. But I also pay extra principal every month – I was doing the rounding-up method, but right now I am calculating additional principal payments and adding those each month.



  11. seanc0x0 on November 17, 2014 at 11:23 am

    It makes sense now to put the money into investments now with the rates so low, and my retirement date off in the future. If rates rise, I’ll kick up the contribution rate at the expense of saving then.

    If I end up closer to retirement than expected through some financial windfall, that would be another reason to accelerate the payoff rate. I don’t want to have to worry about the mortgage once I’m no longer working!



  12. Kyle on November 18, 2014 at 7:54 pm

    I hear you Sean. Sounds like a solid game plan to me!



  13. Ben on November 21, 2014 at 9:46 pm

    All I can think of is how much closer to freedom he’d be, and how much larger his net worth would be if he had taken all those extra mtg pmts and invested the proceeds…



  14. dave on November 28, 2014 at 9:39 pm

    We own a rental building and have implemented a cash flow dam to aggressively pay-off the mortgage in our primary residence.



  15. Shayne on December 3, 2014 at 1:32 pm

    People need to fully evaluated their situation before buying. After that the best strategy is to put everything you can towards your mortgage. Being mortgage free is a great feeling.



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