June 17, 2022

How to pay off your mortgage faster

By Deanne Gage

Are rising interest rates motivating you to pay off your mortgage faster? Here are 3 strategies that might help you do just that.

Want to pay off your mortgage faster? There are options.

But before you dive in, it’s important to consider your current financial situation. If inflation or interest rate hikes are affecting your finances, you’ll need to take that into account.

Your advisor can help review your financial situation. If you don’t already have one, find a Sun Life advisor near you.

If you’re financially stable right now, here are some ways you can own your home sooner.

  1. Pay more than the minimum on your mortgage
  2. Use any extra money you have
  3. Speed up your mortgage payments

1. Pay more than the minimum on your mortgage

Let’s say your mortgage is $2,000 a month but you can comfortably afford to spend another $200. Doing so will reduce the amount of interest you pay, says mortgage broker Vince Gaetano. It could save you years of payments.

“We advise clients to pay what they’re comfortable paying and not just make minimum payments,” Gaetano says. “Doing so will allow you to be debt-free more quickly.”

2. Use any extra money you have

Make a lump-sum payment every year. Where could this money come from? It could be:

“Even an increase to your mortgage payment of $25 could make a difference. It could shave months off your mortgage repayments,” says Gaetano.

Most mortgages allow for additional payments per year. In some cases, you can pay back between 10% and 25% of the balance. Gaetano advises that you confirm these particulars before signing a new mortgage agreement. “Want to pay off the mortgage quickly? These prepayment options are important,” he says.

He suggests making lump-sum payments to the nearest thousand. Let’s say you have $195,320 left on your mortgage: You’d make a payment of $320 to bring it down to an even $195,000 which over the long term can reduce your payments and interest.

3. Speed up your mortgage payments

What’s better?

  1. Paying $1,000 a month?
  2. Or paying $500 every two weeks?

The latter strategy comes out ahead.

For an accelerated program, divide your monthly mortgage payment in half. Then make that payment every two weeks. This means you’re making 26 half-payments in a year. That’s the equivalent of one full additional monthly payment.

“The 13th payment is what we call the accelerant. It allows you to get that mortgage paid down faster,” says Gaetano.

Payment frequency may not seem like a big deal but compare these two scenarios.

Scenario 1

The Smiths have a $200,000 mortgage at 6%. They pay $1,280 per month. If the interest rate and their payments remain the same, they will pay off their mortgage in 25 years.

Scenario 2

The Browns have the same $200,000 mortgage and 6% interest rate. They pay $640 in accelerated biweekly payments. It will take them 21 years (four years less than the Smiths) to pay off their mortgage. What’s more, they’ll save $35,000 in interest payments.

Are you taking out your first mortgage? Maybe you’re renewing an existing one? In both cases, these strategies can help you pay it off years sooner.

Wondering if you should pay off your mortgage or save more in your RRSP?

Use our RRSP vs. Mortgage calculator to find out what’s right for you.

Do you need mortgage protection insurance?

It’s an uncertain world. You may be able to cover your mortgage payments now. However, there’s no knowing what might happen in the future.

Think about how the mortgage could get paid if:

  • you got seriously ill or injured?
  • Or you passed unexpectedly?

Are you worried about the answers to these questions? You may want to consider getting mortgage protection insurance.

Mortgage protection insurance can help cover your mortgage payments if you become critically ill or die unexpectedly. It combines two types of life insurance:

  1. Term life insurance. Your coverage lasts for a set period, such as 10, 20 or 30 years. It can be suitable if you’re looking for low-cost insurance. (Note: While the premium may be low for the first term, the cost will increase at renewal.) If you died unexpectedly during your set term period, your family or beneficiaries would get a one-time payment. They can use that money for any purpose, including paying off the mortgage.
  2. Critical illness insurance. If you’re diagnosed with a serious illness covered under the policy, you receive a lump sum payment (assuming you meet the other policy conditions). You can use the money however you wish. It can cover medical expenses, pay off your mortgage or anything else.

You can apply for mortgage protection whether you’re a homeowner with a mortgage or a first-time homebuyer. Learn more about mortgage protection insurance and how it can secure your future.

Want to apply for your life or critical illness insurance online?

You can, with Sun Life Go.

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RRSP vs. Mortgage calculator

Putting money in your RRSP is a great way to save for retirement. But you may gain more in the long run by paying down your mortgage first.

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Use this calculator to find out how your net worth – the difference between what you own (your assets) and  what you owe (your liabilities) compares to other Canadians.

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