Purchasing a home is a huge investment that comes with a lot of responsibility and potential stress. Most of the homeowners that I have worked with will attest that owning your own property is worth the worries that can sometimes come along with making regular mortgage payments. As a real estate agent with over 20 years of experience, I have helped clients at every stage of repaying a mortgage and thought it would be helpful to give you some mortgage repayment tips! Keep reading for some of the best ways you can work towards paying off your mortgage faster.
Before I explain some of the ways you can more quickly pay off your mortgage, I need to explain why you would want to do that in the first place. You will need a down payment of at least five percent of the home’s purchase price in order to buy a home in Canada. There are federal programs such as the first-time Home Buyer’s Plan (HBP) and the First Time Home Buyer Incentives that can assist with saving this lump sum of money. However, the remaining amount owing on the property goes into your mortgage loan that is spread out over a number of years with terms and an interest rate. The most common loan length for first-time homebuyers is 25 years with the interest rate being renegotiated usually after every 5 years. The total amount you owe is divided into monthly or bi-weekly payments so that a portion of every payment goes toward the principal loan and another percentage goes to your lender in the form of interest payments. This means that the lower your interest rate, the less money you pay your lender.
Essentially, you want to negotiate the lowest possible rate (see my blog on how to improve your credit score) so that you are paying down your principal loan as much as possible. You will want to pay your mortgage off faster because your loan length actually impacts the amount you will pay in interest over the course of owning your home. Even though homeowners often try to stretch their mortgage rates over a longer term to decrease payments, this will also lengthen the time you will need to pay off your loan and increase how much interest you will pay. Paying off your mortgage faster could translate into a significant amount of money that could be going towards your home instead of in your lender’s pocket. Remember that your interest rate is based on your borrowed amount, so with every payment, you make you increase your home equity and decrease the amount you pay in interest. Here are some other ways you can save money and pay off your mortgage faster!
This sounds obvious, but a lot of homeowners do not think about how much money they can save over the course of their mortgage by paying even $50 more each month. Remember that every additional payment you make will increase the value of all the following payments because it is going towards the home and less toward paying off interest. I also recommend opting for bi-weekly instead of monthly payments to sneak in another payment. This is not something lenders offer so you will need to deposit money into your account every two weeks to give to the lender at the end of the month. I recommend this because there are 12 months in a year but 26 bi-weekly cycles meaning you will be making one extra payment each year. Aside from this trick, you can always pay lump sums whenever you have the extra cash. This is great for paying off interest and focusing on paying the principal value of your home.
Take Care of Other Debt
This one sounds a little counter-intuitive but it’s important if money is tight! A mortgage is a long-term debt with a relatively small interest rate while personal loans, like credit cards or medical loans, are more short-term debts with high-interest rates. Paying off your other debt first will avoid more damage in the short-term that you can put towards your mortgage in the future. Avoid the severe penalties that come with personal loans by focusing on this debt first, so you don’t prolong damage. Also remember that if you are no longer happy with the mortgage you’ve had for a few years, you can always try to refinance it to better fit your goals and budget.
This one is easier said than done but spending less money on other items is a great way to set aside money for your mortgage payments. Take a look at your ideal budget (what you would like to be spending) and compare it to your monthly spending (what you are actually spending) to see where you are spending too much. Focus on where you can spend a little less and move it towards your payments. Remember that every bit helps, and you’d be surprised how much you spend on things like eating out and coffee runs each year.
Sell or Rent
Another tip is to take inventory of the things you own and think about if you actually use them often enough to justify having them in your home. Sell those old CDs or DVDs, video games, unwanted clothing, and old technology for some extra cash and space. Not only will selling these items declutter your home, but the extra money that you wouldn’t have otherwise can be put right towards your mortgage loan. If your home has a spare bedroom, renovated garage, or finished basement, consider renting it out for extra monthly income. Again, this additional income can be added to your payments or saved to be put down as a lump sum later.
I hope these tips help you better understand how you can pay off your mortgage faster, even if it’s just a little extra every year! Send me a message for more expert advice on mortgage payments or buying your first home. With my 20 years of experience and knowledge, I can help you understand what you can afford and how best to go about looking for a new home. I’d be happy to discuss your best options and where to focus your time! Contact me or call me directly at 519-993-5656 to start discussing how I can help you buy, rent, and sell your dream property.