Can you pay your mortgage down faster?

Are you looking for ways to pay your mortgage off faster? Every home owner dreams of the day their mortgage is fully paid off and they own their home free and clear. However, we all know it’s a long process to get there! That’s why many Canadians are attracted to the idea of paying off their mortgage quickly. It’s important to take all factors into consideration, including your mortgage term and your finances. Here’s what you need to know about accelerating your mortgage payment schedule! 

How are the Bank of Canada’s actions affecting you?

First, let’s take a moment to review how the Bank of Canada can impact your mortgage. Whenever the bank announces a change to the overnight lending rate, this will also change variable mortgage rates. The bank has been on a bit of a roll in the past year, introducing eight consecutive rate hikes since last March. Most recently, the Bank of Canada raised the overnight rate by 0.25 per cent last month, bringing it to 4.5 per cent. If you’re in a variable-rate mortgage, you have no doubt noticed your monthly payments creeping up. 

The good news is that, for the most part, people are predicting last month’s rate hike was the last. With inflation finally coming under control, and the risk of an upcoming recession, we don’t expect the Bank of Canada to raise the bar again. Now that we can reasonably predict interest rates to remain steady, what are your options as a home owner to pay your mortgage down faster?

Shorten your amortization period

This is a common method of paying off your mortgage more quickly. Your amortization schedule represents the timeline for your mortgage payments. The longer your amortization period, the longer it takes to pay off your mortgage, because your payments will be stretched out over a greater timeframe. If you’re hoping to pay your mortgage down faster, you would simply do the opposite. A shorter amortization period means you will be making fewer payments within a shorter period of time, but those payments will be larger. 

Home owners who feel confident in their abilities to pay off their mortgage may try to renegotiate the terms of their mortgage with their lender to accommodate this change. Of course, this means you are committing to taking on bigger payments within a more crunched time period. Make sure you are prepared for it!

Take advantage of prepayment privileges 

If your mortgage contract includes prepayment privileges, this is another great way to pay your mortgage off faster. Prepayments allow you to make additional contributions towards your principal amount. This means that, on top of your regular payments, you are adding in extra money to lower your balance more quickly. Taking advantage of prepayments can help you save time and money, because the sooner your mortgage is paid off, the sooner you will stop owing interest.

However, prepayment privileges have limitations. These rules will be clearly defined in your mortgage contract. Your lender will have a maximum prepayment amount they will allow, and trying to pay more than the limit will result in penalties. Be careful to ensure you understand your mortgage terms!

Before you act, get in touch with us

As tempting as it is to take any means necessary to pay your mortgage off faster, don’t move too fast. Your mortgage is a huge financial commitment, and you may not be in a place where you can comfortably afford to make bigger, or more frequent, payments. Many Canadians are trying to save and spend wisely these days, so it’s perfectly fine to decide paying off your mortgage faster is not the right move for you today. It’s not worth the financial strain to try to get ahead of your mortgage!

If you think you are in a good position to pay your mortgage off more quickly, we first recommend getting in touch with a mortgage broker. We can chat about your prepayment options and amortization schedule, and what next steps might be best for you. We are dedicated to being your most trusted advisor in the mortgage industry!

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.