For most, a home is the biggest investment they’ll make in their lifetime. As you may know, buying a home doesn’t end when you get the keys. Paying for it continues for years and decades, and can really take a toll on a household’s budget.
Just take a peek at a Canadian household’s expenses. On top of their lists, you’ll find those shelter-related expenses make up 29.3% of their total annual expenses. Broken down further, about 18.5% of their expenses are allocated for transportation, while 14.9% of their expenses are allocated for food.
Canadian mortgages may be burdensome for households and thus, it’s not a wonder how families dream of taking this off their shoulders as soon as possible.
Should I do this?
Assuming that you find yourself with extra cash. Should you pay off your mortgage ahead of time?
Being free from mortgage payments in the years to come will surely result in a significant amount of savings. You’ll be able to plan and save for things you’d want to do in the future, instead of being tied to paying your mortgage.
On the other side of the coin, you’ll also need to consider other things that need to be paid off early, particularly, high-interest debts. Credit card and student loan debts may not be the biggest expenses in your monthly budget, but paying these off early can save you from paying higher interest rates. Also be sure to keep an eye out for investment opportunities that will yield a higher return, versus you paying off your mortgage.
Self-Check: Ask yourself these questions first
Before making a decision, be sure to conduct a self-check. How do you know if paying off your mortgage early is a better decision? Here are 3 questions to ask yourself:
- Do you have adequate emergency funds?
- Have you started saving for your retirement?
- Do you have little to no high-interest debts?
If your answer is YES to all of these questions, then paying your mortgage off early makes sense.
How to pay your mortgage off early?
Here’s 4 useful tips to help make this possible:
1. Tighten your budget
Tighten up on loose spending and increase the amount of money you put towards your mortgage payments. For instance, you can plan to limit dining out and save an extra $20 every time you are going to eat or order out. That amount can be allocated or added up to your monthly mortgage payments instead. This may not sound much by itself, but this can definitely add up and compound over time.
Try using a mortgage payment calculator to help you do the math.
2. Make extra payments
There’ll be a few times a year when you may have access to extra cash – it may be in the form of bonuses or tax refunds. An extra $1,000 or more per year can make a difference. Just be sure to check with your lender that extra will be applied towards the principal of the mortgage and not the interest.
3. Refinance your mortgage
Refinancing is a way of helping you pay off your mortgage early and saving on interest. Talk to a mortgage broker who can help you find and qualify for a mortgage with lower interest rates.
4. Consider downsizing
The most drastic move on this list is downsizing your home. If you’re really eager to eliminate your mortgage early, consider selling your house for a smaller home. This’ll be less expensive and easier to pay off. You can also use the profit to buy a smaller home in cash or you make a larger down payment on another home.
What happens next?
Once you’ve finally paid off your mortgage, what’s next?
You should receive discharge documents from your lender showing that your mortgage is paid in full.
Take the first step: Consult a mortgage broker
We know how many households struggle to pay off their mortgages. We also understand how much financial freedom you’d get if you paid it off sooner. To help you navigate through your home buying journey with a more secure plan for the future, consult a trusted mortgage broker. Mortgage brokers have access to a number of lenders and can help you compare mortgage products and rates.