Home finances: Pay off your mortgage faster

Jim Yih, Edmonton Journal 

Home finances: Pay off your mortgage faster

When interest rates are low, most people think it's a great time to borrow. But in fact, when interest rates are low it may be the best time to pay down debts, because you end up paying down principal faster.

Kurhan / Fotolia.com


When interest rates are low, most people think it’s a great time to borrow. But in fact, when interest rates are low it may be the best time to pay down debts, because you end up paying down principal faster. Here are some strategies to help you save money and pay your mortgage off faster.

Lower your interest rate

One of the best things you can do to save money on your mortgage is shop around for the lowest interest rate possible. To find the lowest rate, you can use the Internet, contact a variety of different financial institutions, or enlist the help of a mortgage broker.

According to Edmonton-based mortgage broker Stacy Bell-Powell, the best five-year mortgage rate is about 3.2 per cent, while the banks are at 5.25 per cent. For every $100,000 mortgage, the difference between the lower rate and the higher rate is substantial.

Shorter amortization

Most people stretch out the amortization period for as long as they can, to keep payments as affordable as possible. Shortening the amortization will mean that your payments go u, but it will also help to save significant interest costs.

If we shorten the amortization from 25 years for a $100,000 mortgage to 20 years at the rate of 3.2 per cent, the monthly payment would increase from $483.57 to $563.60, but the end result would be a savings of $9,807.48 in interest over the total amortization period.

Accelerated options

One of the easiest and best ways to pay a mortgage down faster is to choose one of the accelerated options. Choosing a 3.2-per-cent weekly accelerated payment over the 3.2-per-cent monthly mortgage payment means that your mortgage is paid off three years sooner.

It’s all about making those extra payments over the course of the year.

Extra payments

Remember that most mortgages have provisions to allow for extra payments, such as doubling up payments or paying an extra lump sum toward the principal balance on the anniversary. Whatever the case, making extra payments makes a huge difference to paying down your mortgage faster and paying less interest to the banks.

Fixed payments with a variable mortgage

One of my favourite strategies to pay off the mortgage faster is to choose the variable rate, but pay it as if it was the longer-term fixed rate. According to Bell-Powell, the five-year fixed rate is 3.2 per cent and the best variable rate is 2.9 per cent.

If you choose the lower 2.9-per-cent variable mortgage, but make payments based on the five-year fixed rate, your mortgage will be paid off one year sooner. The greater the spread between rates, the faster you will pay off the mortgage.

As debt levels continue to hit record highs, people need to get more serious about paying down their debts faster. These strategies provide you with a wide variety of options, and using them in combination can make an even bigger difference.

It doesn’t take much to make a big difference in savings. All that’s required is knowing your options and exerting a little self-discipline, and you can become mortgage free a lot faster.


