How to Pay Down Your Mortgage Faster

For many homeowners, mortgages are the bane of their existence. That’s partially because mortgages can seem to last forever, and, with tacked on interest rates, they can balloon to exorbitant sums.

It makes sense that you’d want to get rid of your mortgage as soon as possible because it lifts a burdensome weight, gets you out of debt, and lets you pay significantly less than you would have over the life of the original loan agreement. That being said, only 35% of Canadian homeowners take advantage of the tools available to pay down their mortgages faster.

So, if you find yourself in the 65% that have to slog through the entirety of the loan agreement and you’ve asked yourself, “how do I pay down my mortgage faster?”, then you may want to keep reading.

Add Extra when You Can

The most logical step for paying off your mortgage early is simply paying extra each month. Of course, depending on your financial situation, it may be hard to achieve that. But, you don’t have to pay an extra mortgage payment every month to get the job done. There are a few ways to approach paying extra on your mortgage:

  • Rounding up – If you normally pay $1,448, why not make it an even $1,500?
  • Bonus or raise – Bonuses and raises can go directly to paying down your mortgage, even if you only use part of that extra cash.
  • Tax refund – Have you ever gotten a decent amount in tax refunds? Tack that onto your mortgage payment.

Even $15 or $20 extra per month can reduce the length of your mortgage and help you save some money in the long run. Another method for paying down your home loan is by using bi-weekly payments. With this method, you can pay half of your regular mortgage payment every two weeks. By the end of the year, you will have effectively made 13 monthly payments.

Refinancing Your Mortgage

The other most commonly used option for paying down your mortgage is through refinancing. It’s certainly not the easiest option, but it can help you in the long run. There are two types of refinancing options at your disposal:

  • ​Refinancing for a shorter loan term
  • Refinancing for lower interest rates

You can also try both options if you’re so inclined. There are pros and cons to each of these them, though. A shorter loan term obviously means that you will pay off your loan faster. For instance, if you have a 30-year loan, you can change it into a 15-year loan. On the downside, however, your payments will rise.

​A mortgage with a lower interest rate, on the other hand, will allow you to pay less in interest over the course of the loan term. Unfortunately, in most cases, the length of your mortgage remains the same.

Refinancing Intelligently

There are ways to get around the downside of this latter option. For example, let’s say you have a 30-year fixed-rate mortgage with an interest rate of 4.2% on $300,000. Your mortgage payment each month will be roughly $1,467. If you refinance to get a more favorable interest rate (let’s say 2.9%), your monthly payment drops to around $1,248.

Although you still have the same 30-year loan term, your interest payments will be smaller. But, what if you just continued paying the original payment of $1,467? You could significantly cut into the remaining principal and reduce the mortgage term.

The Best Way to Pay Off Home Loans

In the end, the method of paying off your home loan faster is entirely up to you. If you’re short on extra cash, then it’s probably best to wait until you have it. Refinancing can also cost a lot in fees, applications, and time. You must decide if it’s cost-effective for you to go that route, or if you can just keep adding extra money when the time’s right.

In the end, the method of paying off your home loan faster is entirely up to you. If you’re short on extra cash, then it’s probably best to wait until you have it. Refinancing can also cost a lot in fees, applications, and time. You must decide if it’s cost-effective for you to go that route, or if you can just keep adding extra money when the time’s right.

In any event, paying off your mortgage early requires a great deal of vigilance and patience. Unless you hit the lottery, it’s not going to happen all in one day. It’s a gradual process, but if you take the right steps, you CAN get it done.

What you should do now

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