Paying off your mortgage faster will save you interest and reduce the time of your loan. Thereare several ways you can pay off your mortgage faster such as accelerated payments,
prepayments, and more.
If you're interested in paying off your mortgage a little quicker, we have a couple of handy solutions for you:
Note: not all mortgage solutions may allow for some of these tips. Be sure to review your mortgage terms and conditions or talk to your financial advisor to understand what options are available to you.
Choose an accelerated mortgage payment option
Choose accelerated weekly or biweekly payments to pay off your mortgage quickly. For example, if you want to make an accelerated weekly payment, we would take your normal monthly payment and divide it by four. That means you would make 52 payments by the end of the year, which is equal to one extra month's payment, applied directly to your loan principal. This can take years off your mortgage and save you thousands!
Increase your payments
Increasing the amount of your payment, even by a small amount, can help you pay off your mortgage faster. For example, if your payment is $732.47, consider increasing to an even number such as $750. This small amount will be applied directly to your loan principal.
Typically, once you increase your payments, you can't lower them until the end of the term. Be sure to check your mortgage contract to understand what you can and cannot do with your mortgage loan.
To calculate how much you could save by increasing your payment, try out our Mortgage Calculator. Just select the Payment tab and remember to add prepayment information.
Annual lump-sum payments
Some mortgages allow you to prepay up to a certain percentage of your original mortgage amount annually. For example, you are in a 30 year mortgage at a 3.5% annual percentage rate, with roughly $500,000 balance remaining. If you do a lump sum payment of $10,000, you could reduce your mortgage duration by almost a year and save over $13,000 in interest from your original payment plan.
Don't forget the prepayment penalties
You can pay off your mortgage more quickly, but there are some prepayment penalties. These penalties will come into play if you prepay more than the allowable amount or pay off your closed mortgage before the end of the term.You can find out more about the prepayment penalty in your mortgage agreement. It’s outlined in the prepayment clause. Here’s how it is calculated: the greater of three months’ interest or the interest rate differential.
For example1,2, for a residential mortgage with a current balance of $100,000 and a current interest rate of 5%, the three-month interest calculation is:
Outstanding mortgage balance x annual interest rate / 12 months x 3 months ($100,000 x 5.00%) / 12 months x 3 months = $1,250.00
Interest rate differential calculation:
| Current mortgage interest rate | 5% |
| Days remaining on term | 624 |
| Current interest rate on a 2 year term 3 | 3.50% |
|
Rate difference between your current mortgage rate and today’s interest rate, for a term similar in length to what is left on your mortgage |
1.50% |
| Multiply your mortgage balance by rate differential to get interest differential for 1 year $100,000 x 1.50% = | $1,500.00 |
| Multiply this amount by the “days remaining on your term” divided by 365 days $1,500.00 x 624 /365 = | $2,564.38 |
| Total interest rate differential is | $2,564.38 |
In this example the interest rate differential is greater than three months of interest. That means the penalty charged would be $2,564.38.
Contact us to start the conversation
- The above calculation is an example only and should not be relied upon for advice. Contact us for information to your mortgage.
- For all variable-rate mortgages, the prepayment penalty is three month’s interest.
- The comparison rate is the interest rate for the term most closely matching your remaining term. If discounted interest rate is used, the calculation of the interest rate differential will depend on the terms of the mortgage contract.