Buying a home today is a smart move, thanks to historically low interest rates. Financing such a significant purchase usually involves combining your savings with borrowed funds, commonly referred to as a mortgage. Mortgages allow you to repay the principal—the amount borrowed—plus interest in regular instalments. Often, property taxes can be included in these payments as well.
Most mortgages are amortized over 25 years, meaning it could take a quarter of a century to fully pay off the debt. While this long-term commitment is manageable for most buyers, there are strategies to pay off your mortgage faster and save thousands in interest over time.
Pre-Payment Options
Many financial institutions now offer generous pre-payment options. These allow you to make extra payments toward your mortgage principal, reducing the total interest paid and shortening the amortization period.
Some options to consider:
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Annual lump sum payments: A $2,000 lump sum on an $80,000 mortgage, for example, can shave years off your amortization.
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Doubling up payments: Some lenders let you make additional payments equal to one monthly payment on designated dates throughout the year.
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Accelerated payments: Switching from monthly to biweekly payments can also create substantial savings over time.
While pre-payments reduce principal, they do not reduce your regular payment obligations, so it’s important to ensure you can comfortably manage both.
Critics point out that if your mortgage interest rate is low, you may achieve a better return by investing the extra money elsewhere, such as in a registered retirement plan or a mutual fund. It’s worth weighing the benefits of interest savings against potential investment gains.
Lower Your Amortization Period
Reducing the length of your mortgage is another powerful way to cut years off your payments. The shorter the amortization, the higher your monthly payments, but the more you save on interest. When interest rates are low and your budget allows, shortening the amortization period can significantly reduce the total cost of your loan.
Re-Finance Your Mortgage
Refinancing can also help homeowners pay off their mortgage faster, particularly if you have a fixed, long-term mortgage and rates have dropped more than two per cent. Keep in mind that refinancing can be costly, as you may face a three-month interest penalty or an “interest differential” fee.
To reduce costs, you can prepay part of the principal before refinancing or work with a lender to arrange the necessary funds to discharge your mortgage and pay the penalty. Professional advice is crucial to ensure refinancing actually saves money.
Paying off your mortgage faster isn’t just about financial freedom—it’s about peace of mind and long-term wealth building. Whether you leverage pre-payments, shorten your amortization period, or refinance strategically, the key is to explore your options and act early.
Ready to take control of your mortgage and explore your options? Schedule a consultation with the MovingSimcoe.com team today and start planning your path to financial freedom. We can refer you to some great financial experts today! If you’re wanting wealth creation strategies, we can help with that to! We’ve helped thousands of people become real estate investors in Barrie, Orillia and surrounding area
