Owning a home is a significant milestone, but carrying a mortgage for decades can feel overwhelming. The good news? There are ways to pay off your mortgage faster and save thousands in interest. Whether you're a first-time homebuyer or a seasoned homeowner, these strategies can help you become mortgage-free sooner.
1. Make Biweekly Payments Instead of Monthly
Switching from monthly to biweekly mortgage payments can help you make an extra payment each year. Here’s how it works:
With monthly payments, you make 12 payments a year.
With biweekly payments, you make 26 half-payments, which equals 13 full payments per year.
This small change can shave years off your mortgage and save you thousands in interest.
2. Increase Your Monthly Payment Amount
If your budget allows, increasing your regular mortgage payment amount—even by a small percentage—can make a big difference. For example:
A $500,000 mortgage at 5% interest over 25 years costs about $2,908/month.
Increasing your payment by just $100/month could save you over $15,000 in interest and reduce your mortgage term.
Many lenders allow you to increase your payments without penalties. Check with your mortgage provider to see your options.
3. Make Lump-Sum Payments (Prepayments)
Most Canadian lenders allow borrowers to make lump-sum payments on their mortgage principal without penalties. These extra payments directly reduce your principal, meaning you pay less interest over time.
Apply work bonuses, tax refunds, or unexpected windfalls to your mortgage.
Even a few extra thousand dollars a year can make a noticeable impact.
Be sure to check your mortgage agreement for prepayment privileges so you maximize this strategy.
4. Choose a Shorter Amortization Period
While a 25-year amortization is common in Canada, you can opt for a shorter term, like 20 or 15 years. This increases your monthly payments but significantly reduces the interest paid over time.
For example:
A $400,000 mortgage at 4.5% interest over 25 years = $1,625/month.
The same mortgage over 20 years = $1,967/month—but saves over $50,000 in interest!
If you can afford higher payments, this strategy helps you own your home much faster.
5. Refinance to a Lower Interest Rate
Interest rates can fluctuate, and refinancing at a lower rate can free up cash for extra payments. Consider refinancing if:
Interest rates have dropped since you got your mortgage.
You want to switch to a shorter amortization period.
You have high-interest debt that could be consolidated.
Keep in mind that refinancing may come with fees, so have a mortgage professional calculate the savings before making a decision.
6. Use Your Tax-Free Savings Account (TFSA) Wisely
Instead of making extra payments directly, some homeowners invest in a TFSA and use the returns to pay down their mortgage in lump sums. This allows your money to grow tax-free before you apply it to your mortgage balance.
7. Avoid Lifestyle Inflation
Many homeowners increase their spending when they get raises or bonuses. Instead of upgrading your car or taking on new expenses, put that extra income toward your mortgage. This simple habit can cut years off your loan.
Final Thoughts
Paying off your mortgage early is one of the best financial decisions you can make. With different strategies such as biweekly payments, lump-sum contributions, shorter amortization, and strategic refinancing, you can achieve mortgage freedom sooner than you think.
💡 Thinking about optimizing your mortgage strategy? Let’s discuss how you can save thousands and pay off your home faster. Contact us today!
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