Many people think they are locked into their 25-year mortgage term, but that’s simply not true. Your mortgage contract actually has built-in options that show you how can you pay off your mortgage faster. As mortgage experts, we know exactly how to use these “hidden” features to your advantage. This guide will reveal four of the most effective strategies you can start using right away.
Simple Strategies: Making Extra Payments
Here are four smart and simple ways you can use them to your advantage:
Strategy 1: Increase Regular Monthly Payment
This is the simplest approach. By rounding up your monthly payment or adding a fixed amount each month, you chip away at the principal faster. Even small, consistent contributions can shorten your mortgage by years and save thousands in interest.
Example:
- Mortgage: $400,000 at 5.0% interest (25 years)
- Regular monthly payment: $2,326
- New monthly payment: $2,500 (increase of $174)
Result: You pay off your mortgage 3 years and 8 months earlier and save more than $36,000 in interest.
Strategy 2: Switch to Accelerated Bi-Weekly Payments
This “set it and forget it” strategy works well with many pay schedules. Instead of paying monthly, you pay half your monthly payment every two weeks. Since there are 26 bi-weekly periods in a year, you end up making the equivalent of one extra full monthly payment annually.
Example:
- Mortgage: $400,000 at 5.0% interest
- Regular monthly payment: $2,326
- Bi-weekly payment: $1,163
Result: By paying every two weeks, you become mortgage-free 3 years and 7 months earlier and save about $35,000 in interest.
Strategy 3: Make a Lump-Sum Payment Each Year
Most Canadian mortgages allow 10–20% of the original mortgage to be paid annually as a lump sum without penalty. Using bonuses, tax refunds, or other windfalls for this payment directly reduces your principal, lowering the interest you pay on every future payment.
Example:
- Mortgage: $400,000 at 5.0% interest
- Lump-sum: $5,000 applied at the end of Year 1
Result: You pay off your mortgage 8 months sooner and save more than $9,500 in interest. Repeating this every year multiplies the savings.
Strategy 4: Keep Payments the Same at Renewal
When your term renews at a lower interest rate, lenders typically reduce your monthly payment. Instead, ask to keep your payment at the same level—this means more goes toward the principal.
Example:
- Original mortgage: $400,000 at 5.0%
- Balance after 5 years: $355,000
- New 5-year rate: 4.0%
- Lender’s new calculated payment: $1,985
- If you continue paying the old amount ($2,326)
Result: You pay off the remaining balance 4 years and 1 month earlier and save more than $23,000 in interest.
Strategy 5: Refinance to a Shorter Term
If your income has increased, consider refinancing to a shorter amortization—say, 15 years instead of 25. Payments will be higher, but you’ll save huge amounts in interest and own your home years sooner.
Why Pay Your Mortgage Off Early? The Power of Saving Interest
Paying your mortgage off early is one of the best long-term investments you can make. Here’s the simple reason why:
Think of it as a long-term investment in your financial freedom. This is true for all homeowners, from those who are self-employed, have a $110k salary, or are just starting out.
Important: Watch Out for Prepayment Penalties
Before making large extra payments, know your mortgage contract’s prepayment privileges and penalties.
For fixed-rate mortgages, penalties are usually the greater of:
- Three months’ interest
- Interest Rate Differential (IRD): the difference between your contract rate and today’s rate, applied to your balance and remaining term.
For variable-rate mortgages, penalties are typically just three months’ interest, usually much smaller than IRD.
Always check your mortgage documents or speak with an expert broker to confirm how penalties are calculated before making extra payments.
Your Path to a Debt-Free Home
As you can see, you have several great options to get ahead. You can make extra payments, switch your payment schedule, or even refinance your loan.
All of these strategies lead to the same wonderful goal: financial freedom and huge savings on interest. The best strategy for how can you pay off your mortgage faster really depends on your own unique financial situation. Once your mortgage is fully paid off, the very last step is to discharge the mortgage from your property title.
Let our team help you create a personalized plan to become mortgage-free sooner. Apply Now for a free, no-obligation consultation to get started.
Author Bio
Asim Ali is a Principal Mortgage Broker with over a decade of experience helping BC homeowners build wealth through smart mortgage strategies. He is an expert in creating personalized plans that help his clients save money and achieve their goal of becoming debt-free faster.