• Dave Fullerton

Mortgage Advice Your Bank Won’t Tell You

Think about where you'll be twenty-five, even thirty years from now. It seems like too long of a time to picture, right? Chances are you're not thinking about the mortgage you'll still have.


If you are looking to pay off your mortgage faster and become that much closer to being debt free, here are some tried-and-true tactics to get you to financial freedom that much sooner!


1. Make a Double Mortgage Payment

To make a double payment once a year can take off four years of the entire life of a mortgage.


We do understand that double can seem daunting. However, if your terms allow for double-up payments, consider paying an extra $100 monthly, and it seems a lot more tangible and will save you thousands in interest.


2. Increase Your Payment Frequency

Changing your mortgage from monthly to bi-weekly accelerated payments can take over three years off your mortgage.


For example: At $2,000 a month, three years of no payments is worth $72,000, not to mention the interest saved.


3. Increase Your Payment

Financial situations change yearly; you can take years off the commitment if you increase your payments annually.


For example: A one-time 10% increase can shave four years off the mortgage. Imagine if you bumped the payment by 10% yearly from the get-go. You would be mortgage-free in 13 years—start to finish! Can't do it? How about 5% every year? You would be mortgage-free in 18 years.


4. Lump Sum Payments

Consider those annual raises, bonuses, or extra income. Even one extra payment a year, equivalent to 1 monthly payment, will give you similar results as tip #2 above.


5. Renegotiate When Rates Drop

Revisiting your mortgage is a good idea when rates drop. However, it is always best to get expert advice to ensure it makes sense for you. If so, the benefits can be substantial. For example, a 1% reduction on a $300,000 mortgage will save $250 a month—multiplied by five years, that's $15,000.


6. Maintain a High Credit Rating

Don't let your credit rating slip even if you already qualify for the mortgage you want. That means paying your credit card bill and keeping your credit utilization low (ideally, using 30% or less of your available credit).

Remember: Even if you're filling your card to its credit limit max and paying it off in full each month, it will look like you are maxing out your credit limit, and your credit score will drop accordingly.


7. Increase Your Mortgage

Increasing your mortgage for debt consolidation can help pay off credit card debt, line of credit, car loan and so on for a better rate and a set payment plan.


8. Make an RRSP Contribution

You can use your income tax refund to pay your mortgage by making an RRSP contribution.


9. Switch to a Variable Rate

Switching your mortgage to a variable rate while keeping your payments the same as if fixed can help you pay your mortgage faster. Since variable rates are typically lower, you will pay more for your principal loan than the interest.


Caution: Variable rates are not for everyone. Always seek a mortgage broker's help to determine if variable rates are the best choice for you.


10. Take Your Mortgage With You

When you move, switch your old mortgage to the new property to avoid a penalty or higher rate on a new mortgage. This process is called "porting." Remember, not all mortgages have this feature, so be sure to ask! It is not widely known, but it could save you a lot of money.


11. Set Up Automatic Savings

Even $10 per paycheck can help! When your extra savings reaches the amount of one payment, apply it to the mortgage.


12. Unhook From the Money Drip

Stop paying with your credit or debit card to get the points. They make it too easy to overspend; instead, go the old-school method and pay cash.


13. Don't Buy on Layaway

Those don't-pay-for-six-month "deals" can tie you into a future expense. Much can change within six months, and you don't want to be unable to afford it. Wait until you are financially ready to invest.


14. Downsize Your House

Are you living in a 5-bedroom family home but consider yourself an empty-nester? Consider downsizing. It will save you money on your mortgage and maintenance fees in the long run.


15. Rent Out the Basement

Not ready to downsize? Consider converting the extra space in the basement and using the income to pay off debt.


16. Make Your Mortgage Tax-Deductible

This is likely possible if you are self-employed, own rental property, or have investments. Check with us to see if this option is right for you.


17. Prioritize Your Payments

Define your various debts by category. It can help you see where you spend your money and pay off debt faster.


18. Start With the Highest Interest Rate

Pay off loans with the highest interest rates first, as these are the ones eating into your extra income


19. Leave Tax-Deductible Until Last

Pay the non-tax deductible loans first and leave tax-deductible debt until the end.


20. Focus on Debt, in Order of Importance

Debt, such as credit card balances, is the worst on your credit rating, so pay these off first. Then, the debt for depreciating items, such as car or boat loans, should be next on the priority list. Finally, loans such as mortgages or investments for assets that should appreciate are the least harmful to your net worth and can be paid out last.


21. Buy a New Car – Outright

Finance it if you must, but don't lease. That is unless you are self-employed, leasing makes more sense.


22. Use Your Secret Stash

If you have a large sum in your bank account saved for a rainy day or vacation and yet owe a similar amount on a line of credit, you need to reconsider. The bank account is paying you next to no interest (taxable income), and the line of credit rate is way higher (and not tax deductible).


You can keep the line of credit open and on standby for a rainy day. Make it the personal line of credit that you have but never use.


23. Give your Banker More Money

Keep enough in your chequing account to meet the minimum requirement to waive your service charges. Some banks charge a fee for transactions, but not if you keep it in the account.


For example: Consider you have $2500 in an account and $10 x 12 is $120 a year to pay off debt, and you would have to earn 5% with the $2,500 in your savings account to come out ahead. Of course, if you need more than 25 transactions a month, see tip #12 above.


Financial futures aren't getting any brighter if we continue running deficits forever, but you can take charge of your finances with these tips!


If you are looking for expert advice about your unique situation and how to pay your mortgage off faster, contact us to discuss your solutions today!