Buying a home is a huge investment and big commitment. Over the past few years, mortgages have been in the spotlight - higher interest rates means the cost of borrowing is more expensive. Fortunately, there are ways you can lighten the load of your mortgage burden...

Your mortgage

To buy a home in Canada, you'll need a down payment of at least 5% of the home's purchase price. These funds are usually accumulated over time and can be supplemented through programs like the First-Time Home Buyer’s Plan (HBP).

The remaining amount needed to purchase the home is borrowed through a mortgage loan. This loan is typically amortized over a set period, often 25 years for first-time homebuyers, with specific terms and an interest rate that are renegotiated at regular intervals—commonly every five years, though terms can range from six months to ten years. The total loan amount is then repaid through regular payments, either monthly or bi-weekly, over the amortization period.

Your rate affects the price you pay

Every mortgage payment you make is divided into two parts: one portion reduces the principal loan (the purchase price of the home), and the other covers the interest owed to the lender. A higher interest rate means a larger share of your payment goes toward interest rather than reducing your principal. Over time, this increases the total cost of your loan.

To minimize the overall expense, it’s in a homebuyer’s best interest to secure a mortgage with the lowest possible rate. Some buyers opt for a variable-rate mortgage, which adjusts based on changes to the prime lending rate.

Your amortization period affects interest costs

In addition to the interest rate, your amortization period plays a significant role in the total interest you’ll pay over the life of your mortgage. Choosing a longer amortization period reduces your monthly payments, which can ease day-to-day financial pressures. However, it also extends the time it takes to pay off your loan and significantly increases the total interest you’ll pay. Depending on the loan amount and interest rate, this can result in a substantial portion of your hard-earned savings going to the lender instead of building equity in your home.

With each mortgage payment, you reduce the principal loan, decrease the interest you owe, and build your home equity—a key step toward full ownership.

HOW TO PAY YOUR MORTGAGE OFF FASTER:

Simply put, the faster you reduce your loan balance, the less you'll pay overall. Here are a few ways to get started:

Increase Your Mortgage Payments

While it may seem obvious, many borrowers don’t take advantage of this strategy, often opting for a bit of extra cash in their pocket now rather than the significant savings it can bring over the life of their mortgage.

The numbers speak for themselves. For instance, if you owe $250,000 on a 25-year mortgage and add an extra $500 to your monthly payments, you could save over $65,000 in interest and pay off your mortgage in just 15 years. Even smaller additional payments make a difference. Adding just $50 a month in the same scenario could shave nearly two years off your term and save you over $10,000.

Every extra payment you make not only shortens your loan term but also increases the efficiency of all future payments, directing a larger portion toward reducing the principal rather than paying interest.

Pay Off Other Debts First

While it might seem counterintuitive, focusing on clearing your other debts before tackling your mortgage can be a smarter financial move. Mortgages are long-term loans with relatively low interest rates, whereas credit cards and personal loans often have shorter terms and much higher interest rates.

While prioritizing your mortgage might save you more money in the long run, high-interest debts like credit cards can cause significant short-term financial strain. Their payments are harder to manage, penalties can be severe, and prolonged balances can be far more damaging to your finances than carrying a mortgage.

Start by paying off any loans or credit cards with high interest rates or accrued penalties. Once these debts are cleared, you can redirect the money saved on interest toward increasing your mortgage payments, helping you pay off your home faster.

Switch to Bi-Weekly Mortgage Payments

This might seem like an unusual tip, but it’s highly effective. While there are 12 months in a year, there are 26 bi-weekly payment periods. By switching to bi-weekly payments and paying half of your monthly amount every two weeks, you’ll effectively make one extra full payment each year.

This isn’t a trick—you’ll be paying more overall—but it’s a simple and structured way to contribute extra toward your mortgage without it feeling burdensome. For those who prefer order and consistency while aiming to pay down their mortgage faster, this method is ideal. Plus, chances are you won’t even notice the additional payment.

Make Lump-Sum Payments

You don’t need to commit to additional monthly payments to pay off your mortgage faster. Many mortgages allow you to make lump-sum payments whenever you have extra funds available. While it can be tough to part with a significant amount of cash without seeing immediate benefits, adopting the right mindset can make it easier.

Keep in mind that a large portion of your regular payments initially goes toward interest rather than the principal. Once the interest is covered, additional payments go directly toward reducing the principal, helping you pay off your home faster.

If you receive an unexpected windfall, such as a bonus or inheritance, consider using it to make a lump-sum payment on your mortgage. Over time, this strategy can save you a substantial amount in interest.

Turn Part of Your Home Into Income

Renting out a portion of your home can be an excellent way to increase your income and pay down your mortgage faster. If you have an unused bedroom, garage, basement, or attic space, consider renting it out. With housing demand at a premium in many areas, it’s often easy to find a willing tenant.

Refinance Your Mortgage

If your financial situation has evolved, you’re dissatisfied with your current mortgage, or you’re seeking a new strategy, it might be time to refinance. Refinancing can allow you to secure a better interest rate, potentially saving you thousands over the life of the loan.

You may also have the option to negotiate more favorable terms, such as reduced rates, by making an upfront payment or committing to higher monthly installments. Refinancing is a great opportunity to align your mortgage with your current financial goals and priorities.

Spend Less

There are many ways that you can reduce your household expenses. Over the course of a year the average person spends $500 on food they end up throwing away; $1,000 at coffee shops; $3,000 eating out, etc. If you tighten your purse strings even just a little, you’ll have more money in your pocket at the end of each month.

Sell Up

If you’re sitting in your home right now, take a look around at all your "stuff". How much do you actually use and need? The average home contains an abundance of junk just begging to be sold. And with the advent of apps that let you list your items for sale online, there’s no excuse not to purge & sell!

If you still have questions, or would like a referral to a reputable mortgage professional, I'd be happy to help - please give me a call 416-909-6497