Life as a homeowner tends to be a whole lot better when you stop having to pay a mortgage and start keeping more of your money. It’s not just the payments – it’s also the savings on interest charges. And the sooner you can pay off your mortgage, the less interest you’ll have to pay.
Still, when your debt is so huge that repayment is supposed to take decades, it can seem daunting, if not impossible, to imagine getting there ahead of schedule. How can you accelerate the experience and pay your home off sooner, preferably before the amortization period?
There are several strategies for speeding up debt repayment, some of which can be combined to make the process move faster still. If you have the means, put one or more of these plans into action and start plotting a path to accelerated mortgage freedom.
Refinance over a shorter term
The most straightforward way to pay your mortgage off sooner is to simply reduce its lifespan. For instance, you could refinance a 25-year mortgage and agree to new terms on a 15-year mortgage instead. Needless to say, this will mean higher regular payments, but it will dramatically decrease the total amount you pay in interest while also cutting your timeline by a full decade.
Reducing term is often an attractive option for homeowners who are already several years into a repayment and don’t want to refinance for the same time period they chose when purchasing their property.
Speed up your payments
Here’s another option for accelerating mortgage freedom that doesn’t require a PhD in finance: speed up your payments. Most mortgages require 12 monthly payments in a calendar year, but you can add one extra every year payment by switching to a bi-weekly schedule of 26 half payments. That way, 12 years into your mortgage, you’ll have made 13 years’ worth of payments.
Make a lump sum payment
Many mortgages allow for annual overpayment, often up to a fixed percentage of the remaining principal. These lump sum payments are a great way to speed up your repayment plan because they offer an opportunity to directly reduce the principal without having to pay a penny in interest charges. With some mortgages, you can also make a lump sum payment before you renew at the end of a fixed term.
Before making any lump sum payment, make sure it is within the terms of your mortgage agreement – some have prepayment penalties limiting the size and timing of additional contributions.
If you’re struggling to finance a lump sum payment, consider using ‘found’ money that’s not in your budget, such as an income tax refund, a bonus or pay raise at work, or cash gifts for a birthday or anniversary. While it may only be a small fraction of the balance, even a few hundred dollars here and there will help you get your goal that much faster.
Shop around for a better rate
Even the low interest rates borrowers have enjoyed for several years can pack a powerful punch in charges on a sizable mortgage debt, so anything you can do to get a more favourable rate will help you put more money towards paying off the principal. As we mentioned in a previous post, interest rates are on the rise right now, meaning this is a good time to look for the most competitive borrowing terms you can find. Shop around between lenders to see if you can get a better deal, and don’t be afraid to ask your lender if they’ll match, or even beat, a competitor’s rate.
Adjust your spending to create more cash flow
For many people, it’s not as simple as just deciding to add more money to their monthly mortgage payment. First, they have to find it, and that can mean some tough budgeting decisions. Still, it never hurts to evaluate your spending and look for ways to free up cash. Whether it’s by ditching unwanted subscriptions, slashing spending on frivolous items, or pressing pause on pricey travel plans, there are all kinds of ways to squeeze out a few extra dollars in savings every month.
Consider downsizing (or relocating)
One way to get a smaller mortgage is to get a smaller home. If you don’t need all the space you have or are open to moving to a location where real estate costs less, you can cash out on the equity in your home and use the money to pay down your mortgage, or possibly even pay it off entirely. Needless to say, this option is highly disruptive and comes with several attached costs, such as land transfer taxes, legal fees, and moving expenses.