Introduction
Paying off your mortgage faster than the scheduled amortization period can save you tens of thousands of dollars in interest and provide significant financial and psychological benefits. Canadian mortgages typically offer a range of prepayment privileges that allow homeowners to accelerate their payoff without penalty. This article outlines seven proven strategies for paying down your Canadian mortgage faster.
1. Increase Your Payment Frequency
Switching from monthly to accelerated biweekly mortgage payments is one of the simplest and most effective ways to pay down your mortgage faster. With accelerated biweekly payments, you make 26 half-monthly payments per year rather than 12 monthly payments. This effectively results in one extra monthly payment per year, which can reduce a 25-year amortization by approximately three years with no change in annual budget.
2. Make Annual Lump-Sum Prepayments
Most Canadian mortgages allow borrowers to make annual lump-sum prepayments of between 10% and 20% of the original mortgage amount without penalty. Even relatively small annual prepayments — $2,000 to $5,000 — can meaningfully reduce your total interest costs and shorten your amortization period. Apply lump sums directly to principal reduction.
3. Increase Your Regular Payment Amount
Many lenders allow you to increase your regular mortgage payment by 10% to 20% annually without triggering a prepayment penalty. The increased portion of the payment goes directly toward principal reduction, accelerating your equity build-up and reducing total interest costs.
4. Refinance to a Lower Rate
If market rates have fallen significantly since you took out your mortgage, refinancing at a lower rate can reduce your interest costs. However, weigh the potential savings against the cost of breaking your existing mortgage (prepayment penalties) and the legal and administrative costs of refinancing. A mortgage broker can help you run the numbers.
5. Apply Windfalls to Your Mortgage
Tax refunds, bonuses, inheritances, and other financial windfalls can be applied as lump-sum prepayments against your mortgage principal within your annual prepayment limit. Rather than spending these inflows, directing them to your mortgage is one of the most financially efficient uses of unplanned income.
6. Round Up Your Payments
Simply rounding up your mortgage payment to the nearest $50 or $100 can accelerate your payoff without feeling burdensome. If your required biweekly payment is $820, paying $900 adds $80 extra per payment or $2,080 per year toward principal reduction.
7. Shorten Your Amortization at Renewal
When your mortgage comes up for renewal, consider shortening the amortization period if your financial situation has improved. Moving from a remaining amortization of 20 years to 15 years will increase your payments but dramatically reduce total interest costs and the time until you own your home debt-free.
