Paying off mortgage for Canadians

For most Canadians buying their own home will be the biggest investment they will ever make. Because of that, you should be very careful what real estate you buy, you have to know what can you afford, and you should be aware of the real cost of your mortgage.

In our debt ridden society, it's very important to make smart investment decisions and in my humble opinion paying off your mortgage as soon as you can is a smart move. Why should you pay off your mortgage early, you may ask? The answer is simple, the faster you pay back the money you borrowed to buy a house, the less mortgage interest you will pay to the lender.

There are several ways to pay off your mortgage early, but you should check your mortgage contract to see what pre-payment options you can use. Below we've listed several popular ways to pay off your mortgage balance faster, and thus save thousands of dollars in interest.

The most popular way to pay off your mortgage loan faster is to use the accelerated bi-weekly payment option. In short with the accelerated bi-weekly payment option you will be making the equivalent of one additional monthly payment per year, thus reducing the life of your mortgage and saving lots of money in interest.

You can make lump sum payments, which directly reduce your mortgage principal, which automatically lowers the interest payments. Most Canadian mortgage lenders allow for a lump sum payment once per year and depending on who you have your mortgage with you can pay a lump sum between 5% and 20% of your outstanding mortgage balance. Just remember that the lump payment cannot be done in several installments during the year, but only once.

Another popular saving option is doubling-up your mortgage payments. For example if you are paying using the accelerated bi-weekly payment option and each payment is $1,000 CAD most Canadian banks and financial institutions will allow you to double that payment. The trick is that the doubled payment is against the mortgage principal only, and it reduces the mortgage outstanding amount right away. Some Canadian banks will allow you to skip payments if you have made double payments for certain period of time before that. However if this happens the outstanding amount of the mortgage is not being reduced.

Another idea for paying off your mortgage faster is to refinance at lower interest rates and continue paying the same amounts you were paying before lowering the mortgage interest rate. The difference between what you are required to pay with the new interest rate and the amount you actually pay, will directly reduce your outstanding mortgage balance.

In conclusion, always look for ways to pay off your mortgage or any debt faster, because you will be less vulnerable to economic downturns, if you have less debt.