Normally, paying off a residential mortgage takes multiple decades of your life. This is an immense financial burden to carry for several years. Many homebuyers try to reduce this burden by paying off their mortgages faster.

If you want to pay off a mortgage faster, you will need to know the deal and the lender well. While some lenders charge early repayment penalties, others impose some time restrictions on closing ongoing deals.

So, how to pay off mortgages early without inviting penalties?

Here are a few important tips that will help you repay your residential mortgage faster:

Make Bi-weekly Payments

You can speed up the repayment process by making one mortgage payment every two weeks instead of every month. This way, you can make twenty-six payments in a year instead of twelve. When you combine the impact of such payments over multiple years, you can easily repay your residential mortgage early.

Bi-weekly payments reduce your principal amount and amortization period. However, consult your mortgage lender and broker before switching to this repayment mode.

Use Prepayment Options

Many residential mortgage lenders offer prepayment options to their borrowers. If you get them, make the most of these opportunities. 

Different lenders offer different prepayment options. While some may allow you to increase your payments by up to 15% to 20% every year, others may let you make lump-sum payments without penalties.

Even if you get a chance to make small prepayments every year, do not let it slip away. It makes a great impact on your overall mortgage payment.

Round Off The Payable Amount

As trivial as it may sound, this is an impactful strategy to pay off a mortgage faster. Round off the amount to the next convenient number to subtly increase the payment. 

For example, if your monthly payment amounts to $1,685, you can round it off to $1,700 or even $2,000 if your lender and budget allow. This won’t be a massive jump, but it will definitely reduce your debt burden over time.

Use Your “Found Money” Wisely

“Found money” refers to any income you generate unexpectedly. This is a non-essential income you may earn from bonuses, gifts, tax refunds, investment dividends, and more.

Instead of spending this extra money, you can always divert it to your mortgage repayments. Doing so won’t cause an additional dent in your savings and reduce your financial burden.

Choose A Shorter Amortization Period During Renewal

Typically, mortgage borrowers renew their mortgages once their terms end. This is often once every five years. When you do so, you can reduce your amortization period (total time needed to repay the loan) to pay off the mortgage faster.

For example, if you have taken a residential mortgage in Toronto and your financial condition has improved by the time the term ends, you can reduce your 25-year amortization period to 20.

Another effective way to repay your mortgage sooner is to keep your payments the same, even if the interest rates drop. You can continue with your previous (higher) interest rate and get rid of the financial burden earlier.

Refinance And Maintain The Payments

If you do not want to wait until your current term ends, you can refinance your existing mortgage and switch to a deal with a lower interest rate. However, you can repay your mortgage faster if you keep making the same payments.

This reduces your minimum payment requirement, giving you a bit of a financial cushion. However, ask your mortgage lender before refinancing and ensure that you do not have to pay an early repayment fee.

Do Not Extend Your Amortization

Extending your amortization period will reduce your monthly repayments. This may sound tempting, but it ultimately increases your financial burden.

Extended amortization increases the total interest you pay on your mortgage. It also extends your debt burden. If you can afford to pay off your monthly mortgage expenses, do not extend your amortization for non-serious reasons.

Accelerate Repayments After Paying Off Other Debts

If you have recently cleared your credit card debt, car loan, or any other debt, you can keep the momentum going by accelerating your mortgage repayments.

If it doesn’t hamper your financial stability, you can channel your earlier debt payments to your mortgage payments. This way, you can pay off your mortgage faster without suffering a financial dent.

Track Your Progress

You can plan to repay your mortgage faster only when you know the remaining mortgage balance. Track your progress every month to see where you stand and how far you still have to go.

Focus on your amortization period, existing interest rates, and your financial condition. If you can afford to make more payments and cover the distance faster, you can always find a way to do it!

How Does Early Repayment Of A Mortgage Help You?

If you are wondering why you should spend more to pay off your residential mortgage faster, here is why it is helpful:

• You can save thousands of dollars every year by making a little extra payment every month
• You reduce the financial burden that has troubled people for decades
• Repaying your mortgage early will increase your cash flow faster
• Making faster repayments helps you earn more equity in your house

The Final Word

These were a few effective ways in which you can repay your residential mortgage faster. Ensure that your lender allows additional repayments without penalizing them. If needed, consult your mortgage broker or financial advisor to make an informed choice.

Ultimately, the key to ending your mortgage earlier is staying informed and making calculated decisions. As a responsible homebuyer, your focus should be on reducing your debt instead of extending it. Leave no opportunity that allows you to reduce your financial burden!