How to Pay Your Mortgage Faster in Canada: Make This One Small Adjustment
Want to know how to pay your mortgage off faster in Canada? Most people do!
Rising interest rates have been an area of concern for many Canadians over the past year, and anything we can do to alleviate long term financial pressure is valuable. Paying off your mortgage early in Canada is one of the best things you can do to achieve that peace of mind!
By making a simple adjustment to your mortgage payment, you could potentially save thousands of dollars over the lifetime of your mortgage.
A Quick Note on Adjusting Your Mortgage Payment Amount
By increasing payment frequency/amount, you could open yourself up to additional penalties
You should always speak with your qualified mortgage agent/broker before implementing any changes to your payment schedule
Utilize an Additional Annual Prepayment
Now we’re not saying to make one large payment that covers your entire mortgage payment for the year, we’re simply talking about making an additional payment towards the mortgage principal balance once per year.
This additional payment is usually a fixed amount or a percentage of the mortgage balance and it is in addition to the regular monthly mortgage payments.
Some lenders allow borrowers to make this additional payment as a lump sum payment once a year, while others allow borrowers to make these payments in smaller amounts throughout the year.
It's important to check with your lender for the specific terms and options available for prepayment.
Increasing Mortgage Payments by 2% Can Help Pay Off Your Mortgage Faster
When you increase your mortgage payments by 2% annually, it means that you are paying an additional 2% of your mortgage balance each year.
This extra amount is applied towards reducing the principal balance of your mortgage, which in turn decreases the total amount of interest you will pay over the life of your mortgage.
This is because the interest on a mortgage is calculated based on the outstanding balance of the loan. The more you pay down the principal balance of the loan, the less interest you’ll be charged.
By increasing your payments by 2%, you are essentially paying off more of the principal balance of the mortgage each year, which reduces the total amount of interest you will pay over the life of the loan. This can help you save a significant amount of money over time and help you pay off your mortgage faster.
Example of a 2% Increase to Your Mortgage Payment
For example, if you have a $500,000 mortgage with a 5-year fixed rate of 5.43% and a 25-year amortization period, the total interest paid over the 5-year term would be approximately $127,367.7.
By increasing your mortgage payments by 2%, you could potentially reduce the total interest paid by roughly $32,280. In this scenario, making an additional payment of $10,000 annually would lead to substantial savings and enable you to pay off your mortgage faster.
It's important to note that this is a simplified example and the exact amount of interest you save will depend on your specific mortgage terms and interest rate. It's also important to check with your lender if there is any prepayment penalty involved, before making such changes.
You can check out this handy mortgage calculator tool to get a more specified example to you and the mortgage you're considering applying for or currently have
Speak with a Mortgage Professional to See if You Can Make This Change
If you’re already locked into a mortgage, or are in the process of looking for a mortgage, give Sherwood a call at 1-(877)-241-6001 to speak with one of our amazing mortgage agents and see how we can help you pay off your mortgage in the shortest amount of time possible!