When it comes to homeownership, many of us dream of the day we will be mortgage-free. While most mortgages operate on a 25-year amortization schedule, there are some ways you can pay off your mortgage more quickly!
Review Your Payment Schedule:
An easy way to start paying down your mortgage faster could be to look at your payment schedule. You may want to move to an accelerated bi-weekly payment schedule. While this will lead to slightly higher monthly payments, the overall result is approximately one extra payment on your mortgage per calendar year. This can reduce the total amortization by multiple years, which is an effective way to whittle down your amortization faster.
Increase Your Mortgage Payments*:
This is another fairly simple change you can execute today to start having more of an impact on your mortgage. Most lenders offer some sort of pre-payment privilege that allows you to increase your payment amount without penalty. This payment increase allowance can range from 10% to 20% increase from the original payment amount. If you have earned a raise at work, or have come into some money, consider putting those funds right onto your mortgage. That will help reduce your mortgage balance feeling like you have to change your spending habits.
For those of you who have pre-payment privileges on your mortgage, this is a great option for paying it down faster. The extra payment option allows you to do an annual lump-sum payment of 10-20% of the original loan amount to help reduce your loan! Some mortgages will allow you to increase your payment by this pre-payment privilege percentage amount as well. This is another great way to utilize any extra money you may have earned, such as from a bonus at work or an inheritance.
Negotiate a Better Rate:
Depending on whether you have a variable or a fixed-rate mortgage, you may want to consider looking into getting a better rate. This would reduce your overall mortgage payments and the amount that goes to interest. This is ideally done when your mortgage term is up for renewal. When rates start to come back down, it could be a great opportunity to adjust your mortgage and save! This may be done with your existing lender OR by moving to a new lender who is offering a lower rate (known as a switch and transfer).
Refinance to a Shorter Amortization Period:
Last, consider the term of your mortgage. If your mortgage is coming up for renewal, this is a great time to look at refinancing to a shorter amortization period. While this will lead to higher monthly payments, you will be paying less interest over the life of the loan. Knowing what you can afford and how quickly you want to be mortgage-free can help you determine the best new amortization schedule.
*These options are only available for some mortgage products. Check your mortgage package or reach out to your lender. He or she will be able to ensure these options are available to you and that you avoid any potential penalties. If you’re looking to pay your mortgage off quicker, don’t hesitate to reach out to your mortgage broker or banker today! He or she can help you review the above options and assist in choosing the most effective course of action for your situation.