Mortgage Tools
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How to Pay Off Your Mortgage Early
For the vast majority of Canadians, the biggest loan they ever take out is their mortgage. With amortizations as long as 35 years, many Canadians ask themselves how they can pay off their mortgage early.
At CMI, we have a number of strategies to help homeowners manage all debts, including their mortgage. If you are in the financial position to get ahead on your mortgage payments, but are unsure how, here are a few tips.
Getting Mortgage Free Sooner
The key to getting your mortgage paid off sooner is paying down as much of the principal as you can, as fast as you can. The longer the principal sits, the more interest it accrues.
Since a large portion of each mortgage payment covers only the interest, it is important that you take advantage of any opportunities to make extra payments. You will end up paying down more of the principal and reducing the amount of overall interest you pay by a significant margin. Here's how you can do it:
- When obtaining your mortgage, be realistic about how much you can afford. Of course, you don't want to bite off more than you can chew, but neither should you keep payments too low. Pay the maximum you can afford so you can get the principal down faster. Most of our lenders will allow you to cut back if your financial circumstances change, so it is well worth paying off a little extra for as long as you can.
- If you "max out" your RRSPs every year, be sure to apply the tax refund you get to your mortgage. Even an extra payment of $1,000 each year can make a big dent in the interest you will pay and help shorten the overall length of your mortgage. (If you are concerned about borrowing to make your maximum RRSP contribution, talk to a CMI mortgage broker about the benefits. In most cases, the cost savings on your mortgage will far outweigh the costs of your loan.)
- Choose bi-weekly payments instead of monthly payments. With payments coming in faster, the principal goes down faster too. In fact, experts estimate that bi-weekly payments will save you the equivalent of one mortgage payment each year.
- Most mortgages allow for some kind of lump sum payment, usually a percentage of the total amount owing. Aim to make these extra payments, whether with your tax refund (as mentioned above) or with any extra cash you come into - gifts, employment bonuses, or even through tightening your belt on other expenses.
Contact CMI for More Advice
If you have any questions about how to pay off your mortgage early or how to manage your overall debt load better, contact a CMI mortgage broker. Working with you, we can devise a strategy that will see you become debt-free faster.
