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Financial Focus: Fast-tracking to mortgage-free

Just imagine that as you’re going through your favourite coffee drive-thru this week, someone stops and offers you $2,000 for your medium double-double. Who would hesitate? We’d take the cash.

Just imagine that as you’re going through your favourite coffee drive-thru this week, someone stops and offers you $2,000 for your medium double-double. Who would hesitate? We’d take the cash.

As unrealistic as this analogy may sound, it’s not so far-fetched when applied to the real estate world. If you take that monthly coffee budget and apply it to your mortgage payment – a mere $30 extra per month – you could save approximately $2,100 over a five-year term. Imagine what it would do over the span of your mortgage.

Most of us can accept the idea that we must borrow money to purchase a home. We look for the best mortgage and then keep doling out the money for as long as it takes to pay it off. Most Canadians choose to amortize their mortgage over 25 years. That’s a long financial commitment, and interest could cause you to pay more than double the cost of your home by the time you submit that final payment. But with good planning – and a few smart tactics – you should be able to enjoy your mortgage-burning party much earlier.

Here are a few strategies for fast-tracking your mortgage:

Increase your monthly payments

Rather than choosing your amortization period first, ask yourself how much you can afford each month. For example, you may feel that you can afford $1,500 per month, and then you’re delighted when your mortgage only requires a payment of $1,300. But consider allocating the extra $200 against your mortgage each month, anyway.

Take advantage of lower rates

In addition to reducing the overall interest component of your mortgage, you can take the opportunity to pay down more principal faster, simply by maintaining your original payment.

Tie mortgage payments to your pay schedule

Many Canadians are paid on a bi-weekly schedule. If you accelerate your mortgage payments to bi-weekly instead of monthly, you could improve your own cash flow and fit in the equivalent of an extra monthly payment each year. That means that you’re paying off principal faster, leaving you with less interest to pay overall. It does not seem like much, but like putting your coffee budget to work, the bi-weekly strategy can have you mortgage-free three years and four months sooner.

Use any bonuses, tax refunds or 'found money' to pay down principal

This is especially valuable in the early years of your mortgage. If you receive an annual bonus or other lump-sum compensation, see if you can put it against the principal. An extra $1,000 per year is a great way to fast-track you to being mortgage-free. 

Consolidate loans into a new mortgage – use the savings to boost payments

If you’re a homeowner with some equity, you can use your mortgage to consolidate your other loans, such as student loans or car loans. Add the money you’ve been spending on loan payments to your mortgage payments and you could see big savings in overall interest.

With low mortgage rates, you should take the opportunity to get an expert mortgage analysis from an independent mortgage broker with access to mortgages from a wide spectrum of lenders. You’ve got a great opportunity to put some fast-track tactics in place. You’ll remember what a good decision you made at your mortgage-burning party.

—Submitted by Sherry Jenkins with Mortgage Intelligence. For more information, call (403) 804-3694 or email sherry@wemortgage.ca