There are many strategies to pay your mortgage off faster. Very few people can buy a home with cash. Most of us need a mortgage to finance the purchase of any kind of real estate.
A mortgage however will cost hundreds of thousands of dollars in interest over the lifetime of the loan.
So taking the right steps to pay off your mortgage faster will save you a lot of money. The only question is how? How can you pay off your mortgage faster?
Not sure where to start? We’re here to help. Keep reading for our top strategies to pay your mortgage off faster.
Why Refinancing Your Mortgage Is A Great Strategy
Refinancing your mortgage is a great idea because you can take advantage of lower interest rates. This will change your principal and interest amounts. It also gives you a chance to consolidate other debts like credit cards so you have one payment to focus on. This allows you the ability to redirect your resources towards the goal of paying your mortgage off faster.
If you can, amortizing your mortgage over a shorter time period means you reduce the amount of interest paid. As you make payments more of your hard-earned dollars go toward the principal.
A shorter amortization period does mean you’ll have a larger payment. The difference between 25 years and 20 could be drastic. So it’s very important to determine if having larger payments will affect your way of life. Use a good mortgage calculator to see what the payments look like. It may feel intimidating to have larger payments but it also means you’ll be paying less in the long run. It’s always good to check with your bank if there are any prepayment penalties before trying to refinance.
In this example, a $300,000 home with 3% interest over 30 years would result in a total of $455,332 paid with $1,265 payments. The exact same loan over a shorter period would be much less expensive. For example:
- 20 years – a total cost of $399,310 ($1,664 per month)
- 15 years – a total cost of $372,914 ($2,072 per month)
- 10 years – a total cost of $347,619 ($2,897 per month)
As you can see, the monthly payments increase substantially. However, these options can save you anywhere from $50,000 to $100,000.
Increase Your Mortgage Payments Each Month
Increasing your mortgage payments each month is another great strategy to pay your mortgage off faster. If you’re not able to refinance, adding a little to each payment can be just as effective. In addition to this, you may be able to make the off lump sum payment. This just means you have to plan a little more.
If you increase your payments each month you’ll pay the principal off faster. This will significantly reduce your mortgage balance over time. This is a great strategy to pay your mortgage off faster.
In addition, simply switching from a monthly payment to biweekly payments will contribute to paying off your mortgage faster.
Put Yourself on a Strict Budget
At this point, you’re probably wondering “Where am I supposed to find all this extra money?” Good question, as nearly 53% of Canadians live paycheque to paycheque.
But don’t worry, we’re going to walk you through the process of how to pay off your mortgage faster by putting yourself on a budget.
Minimize Your Expenses
First, let’s talk about reducing your monthly costs. Most people have way more money than they think, they just spend it on stuff they don’t need.
You can reduce your costs to have more money to put toward your mortgage by:
- Cutting out restaurant meals
- Limiting your household to one TV/movie streaming service
- Giving yourself a modest allowance for unnecessary purchases
- Down-grading your car to something older and more affordable
- Making your coffee at home
- Canceling unnecessary subscriptions and memberships
- And more
The more you can save on a monthly basis, the more money you can put toward becoming debt-free.
Find Ways to Earn More Money
What if you’re already on a tight budget but don’t seem to have enough money left at the end of the month to make a dent in your mortgage? This is a common dilemma, especially for people who have kids, large amounts of debt, and/or low-paying jobs.
Though you may not realize it, there are plenty of easy ways you can earn more money, if you’re willing.
In truth, if you’re willing to put in the work, there are tons of opportunities for people with varying levels of experience to make money on the side.
Consider Paying Off Your Other Debts First
For the best impact, consider becoming completely debt-free in the other areas of your life before turning to your mortgage. Though this may sound counter-intuitive, think about how much money you spend each month making payments on your other debts. If you’re like most people, it’s anywhere from hundreds to thousands of dollars.
However, these debts are much smaller than your mortgage and will be easier and faster to pay back. Once you do, you’ll have hundreds of extra dollars each month to put toward your home loan (not to mention a much better credit score).
Consolidate Your Debt
Sometimes, our financial situation can be so sticky that it’s hard to make a move in any direction to become mortgage-free. However, this doesn’t mean you’re without options.
If you don’t have enough wiggle room in your budget to make extra payments toward debt, create it by using a debt consolidation loan. A debt consolidation loan will absorb many of your smaller debts into a single debt and single payment.
This payment is usually smaller than the combined payments of the smaller debts. The interest rate is generally lower, as well. This may give you the breathing room you need to get a foothold on your finances.
Even if you only free up an extra $100, that’s still something. This could go towards paying your mortgage off faster.
Do You Want to Pay Off Your Mortgage and Become Debt-Free?
It is a beautiful dream to be debt-free and keep almost every penny you earn. However, big dreams come with a lot of hard work. If you’re willing to put in the effort and make the necessary sacrifices now, there’s no reason why you can’t accomplish your dream.
Just remember why you’re doing it and how good it will feel to say I’m mortgage-free. We can help you get there faster.