When I started my career in the 1980s, one of the central themes for Buyers was to work toward paying the mortgage off. I remember mortgage document “burning parties” where a group of friends would get together and celebrate a mortgage being paid off and getting calls from a homeowner who shared that they had knocked 5 years off the duration of their mortgage.

Over time the size of mortgages has grown and the thoughts of paying them off seemed a concept that ended more than a decade ago. I thought it would be worthwhile to spend some time looking at creative ways to reduce your mortgage.

Increasing your payments from monthly to weekly.

By increasing your frequency of payments to weekly, you end up paying one more mortgage payment a year and that reduces your amortization, helping to pay your mortgage off quicker. A $500,000 mortgage at 5% with a 5-year term would have a balance of $442,500 with monthly payments. If the Buyer made weekly payments the balance at the end of the term would be $426,000. These extra payments resulted in paying over $16,000 more than a borrower paying monthly.

Making a lump sum payment of 15%.

Most lenders allow a borrower to put up to 15% down on their mortgage on a yearly basis which directly reduces the principal and shortens the amortization. The wording is a bit tricky where most borrowers (as in the example above) do not have $75,000 on hand to make a payment so most opt to not make any payments. However, even a small lump sum payment of $5,000 will have a big impact. A $5,000 lump sum payment (or $84/mth over 5 years) will reduce the principal amount by a further $23,000. Just by increasing your payments by $84/mth!

When renewing your mortgage, lock in early.

When you have a mortgage coming up for renewal, you can lock in today’s mortgage rate as a protection of rates rising. This is best utilized when rates are expected to rise. An example would be a borrower who has a mortgage renewing in 4 months reaching out to their lender and locking in today’s rate. This protects the borrower in case the rate increase, and if they drop the borrower gets the lower rate.

Locking in from a variable rate mortgage.

Currently variable rate mortgages are in the 6 – 7% range with fixed term mortgages floating around 5% for a 5-year term. If a borrower finds themselves stretched by high payments with a variable rate mortgage, they can approach their lender and inquire about locking in with a fixed term mortgage and dropping the rate and monthly payments.

Banks make an incredible fortune off of mortgages and are not overly excited about informing their borrowers on how to save money. For every dollar a borrower saves it is a dollar the lender does not collect. By being a savvy homeowner and keeping on top of your mortgage you can be one of the fortunate ones who see their mortgage dropping yearly with an end in sight. Even a $1,000 lump sum payment will pay off with an extra $4,500 over 5 years. Where else can you get that rate of return?

If you have questions about a renewing mortgage or are interested in buying or selling, I can be reached at lindsay@buyselllove.ca or 905-743-5555

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