Paying off your mortgage faster

From Financial Consumer Agency of Canada

Put extra money toward your mortgage

To pay off your mortgage faster, consider putting extra money toward your mortgage.

Your mortgage contract may allow you to:

  • increase the amount of your regular payments
  • make a lump-sum payment

Your lender calls this a prepayment or prepayment privilege.

Increase your payments

Increasing the amount of your regular payments, even by a small amount, may help you pay off your mortgage faster.

You may only be able to increase your payments by a certain amount each year. The amount will be indicated in your mortgage contract. If you increase your payments by more than your prepayment privileges allow, you may have to pay a prepayment penalty.

Normally, once you decide to increase your payments, you won’t be allowed to lower them until the end of the term. The term is the period of time that your mortgage agreement is in effect, including your interest rate and terms and conditions.

Check your mortgage contract or contact your mortgage lender to find out about your prepayment options.

Example: increasing your payments

Suppose you’re considering a mortgage of $200,000 that you’ll pay back over 25 years.

You want to decide if paying $100 more a month will help you save money.

Assume the following:

  • your interest rate is fixed at 4% for 5 years
  • your mortgage lender tells you that you must pay at least $1,052 a month

Assume that your interest rate of 4% remains the same throughout your 25-year mortgage.

Table 1: Example of increased payments
Monthly payment at $1,052 Monthly payment at $1,152
Principal (total amount of your loan) $200,000 $200,000
Interest (amount you pay to borrow money) $115,612 $99,853
Total amount you pay for your home $315,612 $299,853
Savings on the interest owed to your lender $0 $15,759
Number of years required to pay off your mortgage 25 years 21.5 years

If you pay an extra $100 a month during the life of the mortgage, you would:

  • save almost $16,000
  • pay off the mortgage more than 3.5 years earlier

Make a lump-sum payment

You can make a lump-sum payment on top of your regular mortgage payments to reduce the outstanding balance of your mortgage.

You may only be able to put a limited amount of money toward your mortgage. The amount will be indicated in your mortgage contract. If you put more money toward your mortgage that your prepayment privileges allow, you may have to pay a prepayment penalty.

Lump-sum payments can be made:

  • before the end of your mortgage term
  • at the end of your term
  • at certain times during your mortgage contract
  • on certain dates set out in your mortgage contract

Check your mortgage contract or ask your mortgage lender to find out about your prepayment options.

Example: making a lump-sum payment

Suppose you’ve got a mortgage of $350,000 that you’ll pay back over 25 years.

Throughout the year, you were able to save an extra $10,000 to put toward your mortgage. You decide to put the money toward your mortgage at the start of your term’s second year.

Your mortgage contract allows you to make one lump-sum payment per year that is no more than 10% of what you owe on your mortgage.

This means you can make a prepayment up to $35,000 ($350,000 x 10%).

Assume that the interest rate of 4% would remain the same for the rest of the mortgage.

Table 2: Example of making a lump-sum prepayment on your mortgage
No prepayment Prepayment of $10,000
Principal (amount you owe on your mortgage) $350,000 $350,000
Interest (amount you pay to borrow money) $202,321 $186,079
Total amount you pay for your home $552,321 $536,079
Savings on the interest owed to your lender $0 $16,242
Number of years required to pay off your mortgage 25 years 23.8 years

Making a $10,000 prepayment toward your mortgage would:

  • allow you to pay off your mortgage more than 1 year earlier
  • reduce how much interest you'll pay by more than $16,000

Prepayment penalties

If you put more money toward your mortgage than the maximum amount allows, you may have to pay a prepayment penalty.

Read your mortgage contract carefully. Make sure you understand the details about penalties.

Find out ways to reduce prepayment penalties.

Keep your monthly payments the same when you renew your mortgage

When you renew or renegotiate your mortgage, you may be able to get a lower interest rate. If so, you’ll have the option to reduce the amount of your regular payments. If you decide to keep your regular payments the same, you'll be able to pay off your mortgage faster.

Example: keeping the payments the same when you renew your mortgage

Suppose you’ve got a mortgage of $200,000 that you’ll pay back over 20 years. Your payments are $1,314 each month. When you renew your mortgage after a 5-year term, your interest rate has gone down from 5% to 4%.

You want to decide if you’ll pay the new minimum monthly payment of $1,230 or continue to pay $1,314 each month.

Assume the following:

  • the amount you owe on your mortgage is $166,757
  • you renew your mortgage for another 5 year term
  • your new minimum monthly payment is $1,230 each month

Assume that the new interest rate of 4% would remain the same for the rest of the mortgage.

Table 3: Example of keeping payments the same when you renew your mortgage with reduced interest rates
Monthly payment at $1,230
(new minimum payment)
Monthly payment at $1,314
(keep payment the same)
Principal (remaining amount you owe on your mortgage) $166,757 $166,757
Interest (amount you pay to borrow money) $54,776 $49,763
Total amount left to pay for your home $221,532 $216,519
Savings on the interest owed to your lender $0 $4,982
Number of years left to pay off your mortgage 15 years 13.9 years

By keeping your monthly payments the same at the lower interest rate for the rest of your mortgage, you would:

  • save almost $5,000
  • pay off the mortgage over 1 year earlier

You may also consider making accelerated weekly or accelerated biweekly payments.

Choose an “accelerated” option for your mortgage payments

An accelerated payment option lets you make weekly or biweekly payments while putting about the same amount of money toward your mortgage as a monthly payment.

Accelerated payments can save you money on interest charges. By accelerating your payments, you make the equivalent of one extra monthly payment per year. You’ll likely not notice a big difference in the amount of your payments, yet it may save you a lot of money in interest.

Check your mortgage contract or contact your mortgage lender to know more about your payment options.

Learn about accelerated payments when you choose a mortgage that is right for you.

Use the Mortgage Calculator to explore your payment options.

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