Tips For Paying Off Your Residential Mortgage Faster
While buying a new house is a big deal, paying off its mortgage is an even bigger deal for many homebuyers. Residential mortgages often give them decades of financial burden, making them repay their loan after as long as thirty years. However, you can pay off your mortgage faster with a few impactful strategies.
If you are earning enough to repay your mortgage faster, you need not wait for decades to become debt-free. For example, if you have taken a residential mortgage in Toronto and landed a high-paying job, you can repay your mortgage faster.
Irrespective of where you live, here are some of the most effective early mortgage payoff strategies you should consider:
Accelerate Your Payments
The simplest and most effective way of getting debt-free early is by accelerating your payments. Most borrowers make bi-weekly instead of monthly payments.
Here, you make a total of 26 payments every year instead of 12. You pay slightly more for every bi-weekly payment. This way, you make a month’s worth of extra payment by the end of the year.
However, consult your residential mortgage lender and ask for their approval before accelerating mortgage payments.
Make Lump-sum Mortgage Payments
Many mortgage lenders allow borrowers to make lump-sum payments every year to end their mortgages earlier. Typically, this lump-sum payment is limited to 10% or 20% of the total amount sanctioned.
When you make such larger payments every year, you can drastically reduce your debt and pay off your mortgage faster. Many homebuyers save up using their tax refunds, work bonuses, investment returns, inheritance money, and other sources to make lump-sum mortgage payments.
Increase Monthly Payments
You can also ask your residential mortgage lender to increase your monthly payments. Most lenders allow this once per year. Even if you increase your payments by a couple of hundred dollars, you can significantly reduce your debt.
Round Up The Numbers
If your lender doesn’t allow you to increase your payments, you can simply round up the numbers. These small differences add up to significant changes in the long term.
For example, if your monthly mortgage payment is $986, you can pay your lender $1,000. This small amount will add up and give you a big debt relief by the end of the year.
Divert Your Financial Windfalls
Financial windfalls are the one-time financial rewards you get in your life. Common examples include prizes won, vehicles sold, properties sold, policies matured, and much more.
Whenever you get such financial windfalls, you can divert some or all of the money to your mortgage payment. This will reduce your debt without changing your lifestyle.
However, you should make smart and informed decisions during such cases. If a financial windfall can reduce other major debts in your life that can improve your credit score, you should always prioritize them. Consult your family members or financial experts before making any major decision.
Stay Away From Penalties
Mortgage penalties will slow down your repayment process. It is better to know all the penalties the lender can charge you throughout your mortgage term.
For example, many mortgage lenders charge prepayment penalties if borrowers end the mortgage early. There is a limit to accelerate your mortgage payments, and your contract will have details about the same. Consult your mortgage lender and go read your contract once before accelerating mortgage payments.
While most residential mortgage lenders don’t refuse additional repayments, they have certain restrictions on them. Know these restrictions to stay away from penalties.
Refinance Your Mortgage
Many residential mortgage lenders in Canada offer refinancing services. You can end your overall debt earlier by refinancing to a mortgage with a lower interest rate.
Here, you end your current deal and shift to a new deal that charges you a lower interest rate. When you refinance to a low-interest mortgage, you can reduce your monthly payments and contribute a greater amount toward your principal. You can also keep the monthly payments the same to end your mortgage even faster.
It is always better to consult your residential mortgage lender before refinancing. Never make impulsive decisions. Borrowers often strategize this process to use their savings the right way. They shift to a low-rate mortgage to increase their payments and free themselves of the debt burden as quickly as possible.
Choose A Shorter Amortization Period While Renewing
When you renew your residential mortgage, you should shorten the amortization period to repay your debt early. Your lender will give you this option.
While your monthly payments may increase, you won’t need to bear the debt burden for too long. Take this action only if you can bear the additional financial burden. You wouldn’t want to see yourself in more credit to settle one debt!
Check Your Lifestyle
This is an indirect but highly effective way to pay off your mortgage faster. If your income increases or you receive a financial windfall, it is tempting to spend more. However, controlling these passions can help you put your money to better use.
Keep a check on your lifestyle and use a good portion of your additional money to pay off your mortgage. You can always enjoy a good life once all your debts are settled!
Review Your Mortgage
Analyze your mortgage repayments and the outstanding amount annually. Tracking your mortgage gives you the complete picture of your financial situation and what you can do to reduce your burden. The best way to resolve a problem is to understand it thoroughly!
The Final Word
You can use one or more of these tips to pay off your residential mortgage faster. Whatever decision you make, ensure that your financial stability does not take a hit. Consult your mortgage lender on matters like prepayment and refinancing. Speak with your family members when it comes to using your financial windfalls. Be vigilant and analyze your finances at every stage to repay your mortgage the right way. This will help you settle your debt faster, improve your credit score, and give you complete ownership of your new home!
