Buying a home is one of the best investments you can make and a super exciting milestone. But, your 25 year mortgage amortization period can sometimes feel like a life sentence.
There’s actually a lot of ways you can pay it off faster - without sacrificing your other money and life goals in the meantime. Putting extra money towards your mortgage means huge interest savings and being mortgage-free faster. And, who doesn’t want that.
Set up bi-weekly payments
Once you have your monthly mortgage payment figured out, set up bi-weekly payments rather than monthly payments. By paying every two weeks rather than once a month, you’ll actually end up paying 13 monthly payments a year - which is an extra payment every year. This will cut your 25 year mortgage down by a few years and will save you money in interest.
Put “extra” money towards it
If you have a yearly bonus, or get money back on your tax return, (and you don’t have other high interest debt to pay off) consider putting that amount directly towards your mortgage.
Look at your housing situation for opportunities
Consider ways you could supplement your mortgage payments using the property you already own. Do you have a suite you can rent out? Or the potential to build a suite for this purpose? Another way Canadian homeowners, especially millennials, are curbing their mortgage costs is through Airbnb rentals. In a recent Airbnb study they found “more than 50 per cent of the income generated by Airbnb rentals are by people that are using it for everyday experiences to pay for things like rent, mortgages, and average utilities”.
“If you have a guest room in your house, one great way to chip away at your principal is to rent out that room on Airbnb. Every $100,000 of mortgage is about $450 a month to carry (at 2.5% amortized over 25 years). So if you earned $675 in a month (about 2 weeks at a conservative $50 a night), you're carrying $150,000 of mortgage due to those friendly travelers. That's overstating it a bit, as you will pay income tax on those earnings, but on the other hand you'll also be able to deduct a small portion of your house expenses (utilities, property taxes, mortgage interest) against that.”
Most homeowners don’t take advantage of making pre-payments. They may see it as lofty or impossible, or they may not see the huge value in it. Most mortgages allow you to pay 20% off the principal per year, which is really significant!
“What makes pre-payments so powerful is that unlike a regular mortgage payment, which is split between interest and principal, the full amount goes towards principal. Common pre-payments options offered by lenders include lump sum payments, increasing your payment and doubling up your payment. Many of us shop for mortgage based solely on the mortgage rate. While the lowest mortgage rate may be the best mortgage, that’s not always the case. If your goal is to be mortgage-free sooner, you’ll want to find a mortgage with a low rate and generous pre-payments,”
We also reward you every year to celebrate getting closer to paying off your mortgage and being financially independent; like sending you a bottle of champagne when you close your mortgage, and gifts like a dinner out on us when you’ve reached your one year mortgage payment anniversary.