Purchasing a house in Canada is not easy until you have a mortgage that suits your needs and paying off your mortgage as early as possible is one of the best decisions you will take. According to a study conducted in 2010 by Canada Mortgage and Housing Corporation (CMHC) 68% of the Canadians felt that that could pay off their mortgage earlier than their current amortization period out of which 27% have either made lump sum payments towards the mortgage or have increased their regular payment amount. Paying off a mortgage early comes with benefit where you save a lot of money on the interest paid towards your mortgage and saved money on interest can be invested somewhere else to get better return. Below listed are 5 ways you can pay off your mortgage early:
Frequency of payments:
Change your monthly mortgage payment with a bi- weekly payment where you make 26 payments a year towards your mortgage and which will help you pay your house at least 3 years before the schedule term of amortization as compare to monthly payment.. Our calculator payment calculate will help you analyze how the frequency of mortgage payment can help you pay your mortgage early .
Example: $300000 mortgage paid on a monthly basis with 3% fixed rate of interest with amortization of 25 years when switched with bi-weekly payment will save $160,58.57 in interest and help you pay off you mortgage early .
Loosen up payments:
Small drops make an ocean is a common saying, in a similar manner every extra dollar paid towards mortgage payment makes a huge difference. For example, if your bi-weekly payment comes to $589 round it off to $600. Cut down on unwanted expenses to meet the necessary onesand this small change towards mortgage payment will help you pay off mortgage early.
Lump sum mortgage payment;
Most of the banks give you an option to make a lump sum payment once a year that is goes directly towards the principal.
Example: When a lump sum payment of $250 combined with bi-weekly payment system is made every year on a mortgage of $400000 with an original amortization of 25 years then your amortization period will decrease by over 3.5 years.
Divert unexpected money:
When you receive unforeseen sources of money like birthday cheques, overtime bonus, tax returns, etc. opt for directly outsourcing the income to towards mortgage payment.
Lessen your amortization period:
Individuals opt for an amortization period of 25 years, especially on higher loan amounts. But if you reduce your amortization period, you will pay off your mortgage quicker. For example, if A& B have a mortgage amount of $400,000 at a fixed rate of 2.39% with an amortization period of 25 and 20 years respectively and bi-weekly payment structure. A will pay $885 as compared to $1048 of B but B will pay off nearly 24% of the mortgage in 5 years as compared to 18% of A as when the amortization period is shorter, more amount goes towards principal payment in a lesser span of time.