Paying your mortgage off faster is one of the few money decisions where small changes compound into something genuinely large. Nobody teaches it, and the bank will never bring it up, because the interest is the point of the product.
Switch to accelerated payments
The single highest-value change most people can make, and it takes one phone call.
Bi-weekly payments mean 26 payments a year. Accelerated bi-weekly means you pay half your monthly amount every two weeks, which works out to 26 half-payments, or 13 monthly payments a year instead of 12. That extra payment goes almost entirely to principal.
On a 500,000 dollar mortgage at current rates, accelerated bi-weekly typically shaves three to four years off a 25 year amortization and saves in the region of 50,000 dollars in interest. The payment barely feels different because it is landing alongside your pay.
Use your prepayment privileges
Most mortgages let you pay an extra 10 to 20 percent of the original principal each year without penalty, plus increase your regular payment by a similar amount. Almost nobody uses this.
A lump sum in the early years does the most work, because that is when the largest share of every payment is going to interest. Five thousand dollars applied in year two does considerably more than five thousand applied in year fifteen.
Tax refund, bonus, a bit left over from something else. Put it against the principal once and you will see the amortization move.
Round your payment up
If your payment is 2,340, make it 2,400. You will not feel sixty dollars and it goes entirely to principal. Do it again at every renewal.
Keep the payment when rates fall
When your rate drops at renewal, most people take the lower payment. Keeping the old payment instead means the difference attacks principal every month, and you never had that money in your budget anyway. This one quietly does more than almost anything else on this page.
Shorten the amortization at renewal
Twenty years left on the clock and you can afford a bigger payment? Reset to fifteen. Harsher monthly, dramatically less interest overall.
When paying it down is the wrong move
Worth saying plainly, because this page could easily read as pay it off at all costs.
Clear high-interest debt first. Every time. Paying extra on a four percent mortgage while carrying a 20 percent credit card is going backwards.
Keep an emergency fund. Money put into your house is hard to get back out, and getting it out costs a refinance.
Look at your RRSP and TFSA room. Depending on your income and the return, those can beat the guaranteed saving of mortgage prepayment.
And if money is tight right now, the right answer might be the opposite of this whole page. Lengthening your amortization to breathe is a legitimate strategy, not a failure.
Where to start
Call your lender and ask two questions. What are my prepayment privileges, and can I switch to accelerated bi-weekly. That is often a several-thousand-dollar conversation and it takes ten minutes.
If you want to see what any of this would do to your own numbers, would a quick look together be useful?
Lora Fenn, Mortgage Agent Level 1, Lic. #M25003153. Dominion Lending Centres YBM Group, FSRA #11129. 705-881-2780 · lfenn@dominionlending.ca