Paying off your mortgage is probably one of the greatest accomplishments you could ever have. Unfortunately, for many, this lofty dream can quickly spiral into a never-ending nightmare, with the massive amount of debt involved in financing a mortgage.
You would have to make sacrifices, such as not traveling as much as you’d want, or enjoying an early retirement.
What if you could pay off mortgage debt worth hundreds of thousands of dollars and still have enough left in your stash to bankroll your dreams? Sounds incredible, right? Incredible but doable.
Although the tips below may read like The Twelve Labours of Heracles, we hope that adhering to these 10 tips will help you pay off your mortgage debt in less time than it took the Greek hero to achieve his finest accomplishment.
How to Pay Off Mortgage Faster in Canada
-
Buy an Affordable Home
If you’d like to finance your property, the first step would be to get pre-qualified. To pass this hurdle, the lender must assess your overall financial situation, crunching out the numbers for the amount you can afford.
What many Canadians aren’t aware of is that in most situations, the lender is simply throwing ballpark figures. While some Canadians may use the numbers to set their property budget, it isn’t advisable to do so.
If you’d like to learn how to pay off your mortgage in 5 years or fewer, then it is better for you to find out your monthly budget to determine how much you’d be spending.
More often than not, what the lender tells you is far less than you can afford. And once you decide to buy, scout for your home in locations where the property value will appreciate over time.
-
Make use of Mortgage Points
If you want to know the cost of financing your mortgage, the lender will give you quotes which include your mortgage rate and points. What’s important to understand is that one point is equivalent to 1% of the loan sum.
For example, 1 point on a C$400,000 mortgage is equal to C$4,000.
If you see yourself living in your home for in the long term, then it’s better use your mortgage calculator and pay for points which will help you save money on your rates.
You can also funnel the extra cash into the principal sum to reduce the average time taken to pay off mortgage debt.
-
Pay off other debts
A popular rule with debt is to pay off the most expensive ones first. The reason is to prevent the interest rate from crippling your finances. Once these debts are paid off, you can overpay on your mortgage.
It is also important not to take on unnecessary, huge financial responsibilities while paying off your mortgage. Take some time to ask yourself “Do I really need this?”
-
Pay Extra
Every time you make extra mortgage payments, the extra is applied to the principal sum. To be able to accomplish this, you have to either have an above average income, a passive or side income.
However, it is vital to consult your lender before you make extra payments. Some financial institutions only allow additional payments at specific periods, or you pay additional fees as the prepayment penalty.
-
Bi-weekly Payments
Bi-weekly payments allow you to make 13 monthly payments in a 12-month calendar year. The payment on the extra month is applied to the principal sum which allows you to whittle down your debt at a faster pace.
It is especially useful for Canadians who can pay more than their monthly mortgage payments.
-
Spend Wisely
It is possible to learn how to pay off mortgage in 2 years, and with the right commitment. You can save up on grocery bills by growing a garden in your yard. This will help you save money on groceries and gas.
If you have a partner, you can adjust your lifestyle to live on a single income while the rest of the cash goes into your mortgage payments.
-
Tax Refund
As stated above, one tip to pay off your mortgage is to make additional payments. One method to do that is to use your tax refund to make an extra payment. The average Canadian tax refund is C$2168.
So, rather than splurging on stuff you don’t really need, you can channel that cash into your debt. Using your tax refund to make additional payments can ensure you pay off your debt a decade early.
-
Reduce the Principal
Once you start paying off mortgage debt for a few years, it will look like the principal isn’t reducing one bit. And that’s true because of compound interest rates. What you have to do is to channel all your financial resources into ensuring part of the principal gets paid on time.
The more money you sink into the principal, the lesser interest you get to pay for the overall term. Besides, the extra money you put in will allow you to take off many years from the loan period.
-
Mortgage Refinance
Refinancing your mortgage can do lots of good things for your mortgage.
- You can reduce the lifespan of the loan through higher interest rates until your mortgage is paid off.
- You can buy lower mortgage rates.
There are refinancing packages that help you save thousands of dollars on interest rates. Apart from this, refinancing your mortgage is an opportunity to rejig your agreement on terms and conditions favorable to you.
-
Let out Space
In today’s economy, it has become the rule rather than the exception to let out extra space for money. Whether it’s your parking space, garage, or bedroom, listing your property on platforms like Airbnb can provide extra income that can be channeled into your mortgage debt.
To fully max out the potential of your home, it’s essential you buy property in busy hubs like Toronto where you can find people willing to rent a room for easy commute.
To further cash in on the potential of your home, you can convert and redecorate you basement into a mini apartment. For example, a two-bedroom basement apartment in Toronto or Mississauga commands as high as C$1700. And for most homeowners, that’s over 60% of their monthly mortgage payments.
Another option is to let out a shared room to students. Many students, especially international students, plan to spend as little as possible on accommodation.
A shared room in proximity to the University can cost as high as C$800 per student. And you can rake in as high as C$2000 each month with breakfast and dinner thrown in.
Final thoughts…
Paying off your mortgage debt can seem like a difficult mountain to climb. The only way to get to the summit is to throw every cash in it, be it your Christmas bonus or employment raise. Once you follow the tips above, you’re certain to pay off your mortgage in less time than you think.
