Wondering how to pay off your mortgage faster? Here are two ways to pay your mortgage off faster!
1. Increase mortgage payments
Depending on your bank, you are allowed to increase your payments by 10% all the way to 100% of your original payment. As you increase your payments, more money goes towards principal so you’re paying down your mortgage faster. You’re also going to be paying less interest as well because your mortgage balance will be declining faster.
Here’s an example for a $300,000 mortgage, 3% interest rate and 25 year amortization. If you added $100 more towards your monthly payment, by the end of the amortization period, with your additional $100.00 payment, you would save about $13,000 of interest and you’ll pay off your mortgage around 2.5 years sooner.
2. Lump sum payment
Again, depending on the bank, you are allowed to make a lump sum payment of 10% - 20% of the original mortgage amount per year without any penalty. This payment goes directly to the principal. What you’ll also notice is that your payment will still stay the same. What banks generally do is reduce the amortization and maintain your payments even though your mortgage amount is lower. You may be able to extend the amortization back when it’s time to renew your mortgage if you prefer a lower payment.
Using the same example, if you made a $5,000 lump sum payment at the beginning of each year, you would save around $42,000.00 in interest and you’ll pay off your mortgage around 8 years sooner.
Both examples are definitely achievable. If you’re fortunate enough to put more money towards your mortgage and really maximize the benefit of increased payments and lump sum, then you’ll definitely be able to shave off many more years off your mortgage.
If you'd like to know more about how you can pay off your mortgage quicker, please feel free to contact us and we'd love to help!