Just imagine that a well-dressed man stops you at your favourite coffee drive-thru this week and offers you $11,000 for your medium double double. Who would think about it? We would take the money. It's not that crazy. In fact, if you used the money you spend on coffee to pay an extra $30 on your mortgage each month, you could save about $11,000 over the life of your mortgage.
Ways to shorten the length of your mortgage
Most of us understand that we need to borrow money to buy a house. We look for the best mortgage and then just keep giving them money for as long as it takes to pay it off. The mortgages of most Canadians are paid off over 25 years. That's a long-term investment, and it could make your home cost more than twice as much. But if you plan well and use a few smart tricks, you should be able to have your mortgage-burning party a lot sooner. Here are some ways to get your mortgage done faster:
- Put all of your loans into one new mortgage and use the money you saved to pay more each month. If you own your home and have some equity, you can use your mortgage to pay off other debts, like student loans, car loans, etc. When you add the money you've been paying for loans to the money you've been paying for your mortgage, you could save a lot of money on interest.
- Use low rates to your advantage. In addition to lowering the total amount of interest you pay on your mortgage, keeping your original payment can help you pay off more of the principal faster. You should even pay more if you can, because this is some of the cheapest mortgage money that anyone can remember. Again, you could cut years off your mortgage and save a lot of money.
- Raise the amount you pay each month. Instead of choosing your payment schedule first, think about how much you can pay each month. For instance, you might think you can pay $1,000 a month. You're happy that your $125,000 mortgage only costs you $800 a month (at a 6 percent interest). But if you pay $1,000 every month instead, you will save 8.75 years and almost $46,000 in interest costs.
- Plan your mortgage payments around when you get paid. A lot of Canadians get paid every two weeks. If you make payments every two weeks instead of every month, you can improve your cash flow and make an extra payment every year. That means you're paying off the loan's principal faster, which means you'll pay less interest in the long run. Even though it doesn't seem like much, the bi-weekly strategy can help you pay off your mortgage four years faster and save almost $22,000. It's like putting your coffee money to work.
- Pay down your loan with any bonuses, tax refunds, or "found money." This will help you a lot in the first few years of your mortgage. If you get a bonus or other lump-sum payment once a year, try to put it toward the principal. An extra $1,000 per year is a great way to speed up the process of paying off your mortgage.
Since mortgage rates are still low, you should talk to an independent mortgage broker who has access to mortgages from a wide range of lenders and get a professional mortgage analysis. You have a great chance to put in place some fast-track plans. You'll always remember how smart it was to have a party to burn your mortgage.
