How to Pay Off Your Mortgage Faster (Guest Post)

The following is a guest post by RateHub.ca

After you buy a new property, you have a number of options to pay off your mortgage much more quickly.

If the amount of debt you’ve taken on seems like a lot, there are a few ways you can pay it down faster:

Accelerate your mortgage payment schedule

You should consider different payment options when you get a mortgage. Making more frequent payments can make a difference in the long run.

We’ll also assume you have a $400,000 property with a $320,000 mortgage, an amortization period of 25 years, and a five-year fixed rate of 2.5%. Be sure to shop around for the best mortgage rates.

Let’s assume you’re trying to decide between making monthly payments or accelerated biweekly payments. We used RateHub’s mortgage payment calculator to determine the differences.

If you choose a monthly option, you’ll make 12 monthly payments of $1,433 or $17,202 annually.

Year	Total paid	Principal paid	Interest paid	Balance
2016	$17,202	$9,349	$7,853	$310,651
2017	$17,202	$9,585	$7,617	$301,066
2018	$17,202	$9,826	$7,376	$291,240
2019	$17,202	$10,073	$7,129	$281,168
2020	$17,202	$10,326	$6,876	$270,841
Total (term)	$86,010	$49,159	$36,851	$270,841

After five years your mortgage balance will be $270,841.

If you decide to go with an accelerated biweekly payment option, you’ll make 26 payments of $717 or $18,635 a year.

Year	Total paid	Principal paid	Interest paid	Balance
2016	$18,635	$10,810	$7,826	$309,190
2017	$18,635	$11,082	$7,554	$298,108
2018	$18,635	$11,361	$7,275	$286,748
2019	$18,635	$11,646	$6,989	$275,102
2020	$18,635	$11,939	$6,696	$263,162
Total (term)	$93,177	$56,838	$36,339	$263,162

Using an accelerated biweekly payment option, you’ll pay off your principal faster and have a balance of $263,162. That’s $7,679 less than what you would have if you chose a monthly payment option.

Shorten your mortgage amortization

Most mortgage amortization periods are for 25 years but shortening it can save you thousands of dollars over the long term. You’ll pay more at first but owe less later.

Let’s use the same example above but change the amortization period to 20 years.

With the monthly option, you’ll pay $1,694 a month or $20,234 a year. And your balance at the end of five years will be $16,604 less than versus a 25-year amortization:

Year	Total paid	Principal paid	Interest paid	Balance
2016	$20,324	$12,507	$7,817	$307,493
2017	$20,324	$12,822	$7,502	$294,671
2018	$20,324	$13,145	$7,180	$281,526
2019	$20,324	$13,475	$6,849	$268,051
2020	$20,324	$13,814	$6,510	$254,237
Total (term)	$101,621	$65,763	$35,857	$254,237

Using an accelerated biweekly option, you’ll pay $847 every two weeks and your balance will be $17,998 less after five years compared to a 25-year amortization.

Year	Total paid	Principal paid	Interest paid	Balance
2016	$22,018	$14,233	$7,785	$305,767
2017	$22,018	$14,591	$7,427	$291,176
2018	$22,018	$14,958	$7,060	$276,218
2019	$22,018	$15,334	$6,683	$260,884
2020	$22,018	$15,720	$6,298	$245,164
Total (term)	$110,089	$74,836	$35,253	$245,164

Increase your payments

You can also make larger regular payments, which can shorten your mortgage amortization. Last year, a report by the Canadian Association of Accredited Mortgage Professionals (CAAMP) found about 16% of people with a mortgage increased their payments in the past year by an average of approximately $285 a month.

Make extra payments

Most lenders allow you to make lump sum payments of up to 25% a year without having to pay a penalty. The same CAAMP report found that about 16% of mortgage holders made a lump sum payment in the past year. The average payment they made was $17,500.

While a mortgage will seem like a large amount of money to borrow, using one or more of these options means you won’t have to pay as much interest and you’ll pay down your mortgage faster in a lot less time.

RateHub.ca is a website that compares mortgage rates, credit cards, and deposit rates with the goal to empower Canadians to search smarter and save money.