What Is a Mortgage, Anyway?
Before diving into strategies for paying off your mortgage faster, let’s quickly go over the basics. In Canada, to buy a home, you'll need a down payment of at least five percent of the home's purchase price. You can save this over time or use programs like the First-Time Home Buyer’s Plan (HBP) to help you out.
The remaining amount needed to purchase your home is borrowed through a mortgage. Mortgages typically have terms ranging from 6 months to 10 years, with the most common being a 5-year term. You then make regular payments—either monthly or bi-weekly—until your loan is paid off, usually over 25 years. The amount you pay each month includes both the principal (the loan amount) and the interest (what you pay to the lender for borrowing the money).
How Mortgage Rates Impact What You Pay
A portion of every mortgage payment goes toward reducing your principal balance, while another portion goes to the lender as interest. The higher your interest rate, the more of your monthly payment goes toward interest rather than paying down your principal. This means the total cost of your mortgage can be significantly higher if you lock in a high interest rate.
For this reason, securing the lowest possible interest rate for your mortgage is essential. Some homeowners opt for a variable-rate mortgage, which can fluctuate based on the prime lending rate, while others prefer the stability of a fixed-rate mortgage.
Why You Should Pay Off Your Mortgage Faster
One of the main factors impacting how much you’ll pay over the life of your mortgage is the amortization period. Stretching your mortgage over a longer period means smaller monthly payments, but it also means you’ll end up paying more in interest over time. The longer the loan, the more interest you’ll pay overall.
Every time you make a payment, you’re not just reducing your debt; you’re also building equity in your home. Paying off your mortgage faster can save you a significant amount of money on interest, allowing you to put more money toward your home’s equity and less toward interest payments.
How to Pay Off Your Mortgage Faster: 8 Practical Strategies
Increase Your Mortgage Payments
This may seem like an obvious tip, but it’s one that many people overlook. Increasing your monthly payment—even just a little—can have a big impact. For example, if you have a $250,000 mortgage with 25 years left and you add an extra $500 a month, you could save over $65,000 in interest and pay off the loan in just 15 years.
Pay Off Other Debts First
It might seem counterintuitive, but it can be more effective to pay off high-interest debts like credit cards and personal loans before you tackle your mortgage. These debts typically have much higher interest rates than mortgages, meaning they cost you more in the long run. Once those debts are cleared, you’ll have more funds available to put toward your mortgage.
Switch to Bi-Weekly Payments
If you’re used to paying your mortgage monthly, consider switching to bi-weekly payments. Over the course of the year, this adds up to one extra payment. This strategy helps reduce your mortgage faster without requiring huge adjustments to your budget.
Make Lump-Sum Payments When You Can
Another way to reduce your mortgage balance faster is by making lump-sum payments whenever you have the funds available. For example, if you receive a bonus or tax refund, consider putting that extra money toward your mortgage. Even though it may feel like a sacrifice, remember that every dollar you put toward your principal reduces the interest you’ll pay in the future.
Rent Out Part of Your Home
If you have extra space—like a spare bedroom, basement, or even a laneway house—consider renting it out to bring in some extra income. This can be a great way to consistently chip away at your mortgage balance without drastically affecting your day-to-day budget.
Refinance Your Mortgage
If you’ve been in your home for a few years and your financial situation has improved, refinancing might be an option worth considering. Refinancing can help you secure a lower interest rate, which can result in significant savings over the life of your loan. Just be sure to weigh the costs of refinancing (like closing fees) against the potential savings.
Cut Back on Spending
Finding ways to reduce your monthly expenses can free up extra funds to put toward your mortgage. Small changes—like cutting out unnecessary subscriptions, reducing dining-out expenses, or eliminating impulse purchases—can add up quickly. Even just a few hundred dollars saved each month can make a big difference in paying off your mortgage faster.
Sell Unused Items
Take a look around your home—chances are there are items you don’t need or use that could be sold for extra cash. With the rise of online selling platforms, it’s easier than ever to declutter and make some money. Put that extra cash toward paying down your mortgage to give yourself a head start.
In Conclusion
Paying off your mortgage faster can seem like a daunting task, but with the right strategies, it’s absolutely achievable. Whether it’s increasing your payments, refinancing, or finding new ways to earn extra income, every little bit helps. By paying off your mortgage early, you can save yourself thousands in interest and enjoy greater financial freedom sooner than you think.
Have you tried any of these strategies to pay off your mortgage faster? Share your tips and experiences in the comments below!