One of the main tenets of Canadian culture is the desire to become homeowners. However, mortgages often feel more like a marathon than a sprint, let’s face it. The good news? You may shorten your loan term by years by taking a calculated approach to mortgage payments.

You should think about contributing additional funds to your mortgage to pay it off sooner. Let’s discuss some effective methods to assist you. 

Supercharge Your Payments

  • Boost Your Regular Payments: The total amount of interest paid throughout your mortgage can be considerably lowered with even a relatively tiny increase in your normal monthly payment. To find out if there are any restrictions on the amount you can raise your annual payments, review the mortgage paperwork.
  • Embrace the Bi-Weekly Advantage: The majority of mortgages in Canada accept biweekly payments. Making an additional complete payment annually results in switching to bi-weekly payments. This additional payment, which goes directly toward the principal amount, speeds up repayment and lowers interest.

Strategies for Faster Repayment in Canada

  • Harness the Power of Windfalls: Gains such as bonuses, tax returns, or inheritances can be effective means of quickening the payback of your mortgage. Think about applying these windfalls immediately to the principle in the form of a lump sum payment. In the long term, even a few thousand dollars may have a significant impact.
  • Think Long-Term with a HISA: While your primary goal should be to pay off your mortgage, you also need to establish an emergency fund. Put your emergency funds in an account with a high-interest rate (HISA). Your repayment journey might be expedited even further by using the interest generated for future lump sum installments.

Explore Advanced Options

  • Accelerated Mortgage Options: Some lenders offer accelerated mortgage options, such as the Accelerated Payment Mortgage (APM). These mortgages allow you to increase your regular payment amount without penalty, accelerating repayment.
  • Renegotiate Your Interest Rate: Interest rates are not set in stone. As your credit score improves or market rates fluctuate, consider renegotiating your mortgage interest rate with your lender. Even a slight decrease can significantly reduce your overall interest payments and accelerate repayment.

Remember, consistency is key:

Implementing even a few of these strategies consistently can significantly impact your mortgage repayment timeline. The faster you repay your mortgage, the sooner you can free up cash flow and achieve financial freedom.

Making Additional Mortgage Payments

Your mortgage contract governs your options for making additional payments towards your mortgage principal. These additional payments can be made in two ways: increasing your regular payment amount or making lump sum payments. Your lender may refer to these additional payments as prepayments or use your prepayment privilege.

  • Increasing Your Regular Payments: Even a small increase in your regular monthly payment can significantly reduce the total interest paid over the life of your mortgage. Review your mortgage contract to confirm any limitations on how much you can increase your payments annually. Be aware that increasing your payments beyond the allowed amount may result in a prepayment penalty. Once you increase your payments, you typically cannot decrease them until the end of your mortgage term.
  • Making Lump-Sum Payments: You can make a lump-sum payment on top of your regular mortgage payments. There may be limitations on the amount you can contribute towards a lump sum payment, so check your mortgage contract for specific details. You can typically make lump-sum payments at various times throughout your mortgage term, including before the end of your term, at the end of your term, or on specific dates outlined in your contract.

Prepayment Penalties

There may be penalties associated with exceeding the prepayment limits outlined in your mortgage contract. These penalties compensate the lender for the lost interest they would have earned if the borrower had not made the additional payment. It’s crucial to carefully review your mortgage contract and understand the details concerning prepayment penalties.

Keeping Your Payments the Same When Changing Your Mortgage

When it comes time to renew your mortgage, you could be eligible for a lower interest rate. Furthermore, certain mortgage providers may allow you to extend your mortgage term if your existing one expires early. This option allows you to mix the interest rates from the previous term with the current one. 

It is sometimes referred to as a blend-and-extend option. You can choose to pay the same amount each month or cut your regular payments with a lower interest rate. By increasing your principal contribution and paying off your mortgage sooner, you will be effectively expediting the repayment process. To find out if the early renewal option aligns with your financial goals, speak with your lender.  

Choose an Accelerated Option for Your Mortgage Payments

You can make mortgage payments more frequently than once a month by choosing an accelerated payment plan. Weekly or biweekly intervals are possible for this. You are effectively making more yearly mortgage payments if you divide your payments into smaller, more regular installments. You may save money on interest by making these expedited payments, which will speed up the reduction of the outstanding principal sum. Speak with your lender or go through internet sites for further details on how often you should make mortgage payments.

You can make your Canadian mortgage a sprint rather than a long-distance race toward financial freedom and house ownership with commitment, smart planning, and the power of extra mortgage payments.

Categories: Mortgage


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