It’s mid-February and just two weeks away from the RRSP deadline which has many of us thinking about finances, retirement, and future financial security. Your home isn’t simply where you live, it’s also a financial investment in your future. The faster you pay off your mortgage, the sooner you can focus more of your savings towards your retirement or your bucket list trip around the world. Finance aside, there is also a notable psychological benefit to paying off your mortgage early.
While it’s advised that you talk to a financial advisor about your retirement savings and financial planning, many people can take advantage of the unprecedented low mortgage rates we’ve been seeing in Canada recently and pay off more of their principal (and pay less interest in total) faster to ensure they get the most value and lowest interest rates possible.
Here are five easy ways to pay off your mortgage faster.
- Increase your number of payments annually. If you are currently making monthly or bi-monthly payments consider moving to accelerated bi-weekly payments. The simple change of going from bi-monthly payments to bi-weekly adds on two payments a year, but over the course of a 10 year mortgage means you’ll be cutting nearly a year off of your total mortgage amortization schedule.
- Make balloon payments. Many lenders will allow you to make lump sum (balloon) payments on your mortgage up to 15-25 percent of your original mortgage amount each year without paying a penalty (make sure you confirm this amount with your lender). Get a bonus at work, or tax refund because of your RRSP payments and put half, or all of it into a balloon payment on your mortgage!
- Consider rounding up your mortgage payments. Even a small amount can make a big difference! So just say you need to pay $677 bi-weekly, round it up to $700 (a difference you’ll likely barely notice). In just five years, you’ve paid an additional $3,000 towards your mortgage.
- Prioritize your lump sum payments and savings based on your age and retirement goals. Have credit card debt with high interest payments? You’re probably better off focusing any extra money there compared to an extra payment on your low interest mortgage. Do you have an emergency fund for household repairs? If not consider beefing that up a little so you don’t need to go into debt when the roof needs to be repaired, or the furnace poops out. Will your employer match your retirement contributions, consider maximizing this benefit and then using a tax deduction towards your lump sum payments instead of putting it all on your mortgage.
- Keep educated and follow trends in the housing market, budgeting, and saving. Read up on mortgage rates, offers from your bank, tax deductions, home repair credits and more to take advantage of what’s available to you. If your mortgage rate is significantly higher than current rates, call your lender (or contact a mortgage broker) to look into options available, just asking the right questions can save you thousands of dollars in interest.