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3 simple strategies to pay your mortgage off years faster

As an educator, you know that education pays off. Especially when it comes to mortgage payments.

As an educator, you know that education pays off. Especially when it comes to mortgage payments.

Yet there seems to be an education gap between Canadian mortgage holders and a few simple mortgage payment strategies that could save years in amortization, not to mention tens of thousands of dollars in interest.

In fact, according to Mortgage Professionals Canada, 64% of Canadians aren’t taking advantage of any kind of strategy to pay their mortgage down faster.

If you’re one of the 64%, we have one question for you: WHY?

Paying your mortgage off faster is a lot easier than you think.

It doesn’t require jumping up the pay grid or winning the lotto. All it takes is breaking free of the typical mortgage payment pattern (by ‘typical’ we’re talking about only making your ONE regular monthly payment for the remainder of the amortization).

Here are 3 simple strategies to break free of the pattern and pay your mortgage down faster:

STRATEGY #1: Switch to accelerated bi-weekly payments.

STRATEGY #1: Switch to accelerated bi-weekly payments.
What a difference a few weeks makes—especially when you’re paying interest on a mortgage in the hundreds of thousands of dollars. So instead of paying your mortgage on a monthly basis 12 times per year, consider making accelerated bi-weekly payments which enable you to pay your mortgage every two weeks, for a total of 26 payments a year.

Now here’s where the ‘accelerated bi-weekly payment’ savings benefits come in.

Let’s say you have a $400,000 mortgage at an interest rate of 3.34% that remains steady over 25 years.

If you stick with the regular monthly payment option, your mortgage payment would be $1,963 a month and the total amortization interest you will have paid at the end of 25 years is $189,035.

If you switched to accelerated bi-weekly payments, your mortgage payment would be $982 every two weeks and instead of taking 25 years to pay off, you would be mortgage-free in 22.1 years—costing you $163,918 in amortization interest, a savings of $25,117.

STRATEGY #2: Round up your mortgage payments.

When it comes to paying down your mortgage, every dollar counts. Literally. This is where rounding up your mortgage payment to the nearest $100 can help to get you there faster—especially if you pair it with the accelerated bi-weekly payment option.

For example: let’s say you decided to take the accelerated bi-weekly mortgage payment of $982 (as described above under Strategy #1) and round it up to $1,000. That’s only an extra $18.

Now let’s break that extra $18 payment down even further: $18 x 26 payments in a year = $368… which amounts to just $1.06 a day. That extra $1.06 a day would shave 4 years off your amortization and save you $29,857 on your mortgage.

Not bad for throwing a few extra bucks onto your mortgage payments, don’t you think?

STRATEGY #3: Make a lump sum anniversary payment.

Making an extra mortgage payment each year is another way to strip away at your amortization and save you interest. It doesn’t even have to be massive—it all adds up. However, you can maximize your lump sum anniversary payment by putting aside any and all extra income that might come your way in a given year. Everything from tax refunds and birthday money, to extra pay cheques and savings you discover by being smarter with your spending.

Example: let’s say that extra money enables you to make an annual lump sum payment of $500 in addition to your rounded up and accelerated bi-weekly payments (as mentioned in the examples above). You would save an additional $34,856 on your mortgage.

So there you have it: Strategy 1 + Strategy 2 + Strategy 3 = paying your mortgage off years faster and reducing your payments.

Of course that’s just an example based on the numbers we provided in this lesson. Your own savings could be even greater depending on your interest rate, amortization, and total mortgage outstanding.

Want help implementing any or all of these strategies to pay YOUR mortgage off faster? Have one of our Agent-Regional Directors contact you.

 

The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy.

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