Tips to become mortgage-free!

Before I start, here's an unexpected caveat: I’m not recommending you rush to become mortgage-free. Why not? For some people, becoming mortgage-free isn’t the intention nor a goal. I’ll talk about that a little later.

However, for the majority of homeowners (like 90% of them), paying off their mortgage is a brilliant plan! Those who do, will save soooo much money over the life of their mortgage!!!

1 of 3 homeowners take action to reduce their mortgage debt

If you want to be debt-free sooner, here’s the great news. It only takes some small simple changes! THE BONUS, by doing this, you can save thousands (maybe many thousands) of dollars in the process!

If paying off your mortgage is YOUR GOAL, (great goal, btw) here are a few tips to help you get to the finish line!!

1) Increase your monthly payment

Most lenders/banks will let you increase your payment by a small amount. Depending on the lender, they will let you increase your payment by 10-20%. Most big banks allow 15% AND you can do this every year.

Meet Fiona, a First Time Homebuyer

Fiona bought her first house last year. Her employer gives her a raise every year and she decided that she would use the raise to pay off her mortgage quicker. Fiona’s mortgage payment is $1200/mth. She decides to increase her payment by 10% (her bank allows 15%, but 10% is better for her finances) every year for the duration of her term.

2022, she increases 10% to $1320/mth
2023, she increases 10% to $1452/mth
2024, she increases 10% to $1597/mth
2025, she increases 10% to $1757/mth

By doing this in the first 5yrs, Fiona will pay off her mortgage in -/+ 5 years sooner and she’ll save over $20K of interest!! Crazy, right?

2) Lump Sum Payment

Most lenders/banks will allow you to make one big contribution to your mortgage per year. The amount, however, is limited! You’re not allowed to pay off your mortgage completely. Say, you get a big inheritance and it’s enough to pay off the entire balance of your mortgage. You’re not allowed…. not without paying a penalty! By providing you with a mortgage, the lenders/banks expect a certain “return on their investment” (aka. interest). If you pay off your mortgage, the banks don’t get any more interest. They don’t like that.

Lenders/banks do, however, allow you to pay a portion of your mortgage (typically 10-20% of the original mortgage amount) without incurring a penalty.

Fiona… a few years later

Fiona’s grandfather had medical issues and passed away recently. Before he passed, he told Fiona that he was leaving her an inheritance and to “put it to good use”. Fiona and her partner decided that paying off the mortgage was a smart move for their family. The original mortgage amount was $400,000 and her bank had a 15% Lump Sum Privilege. Basically, once a year, Fiona could put up to $60,000 on her mortgage.

3) Match-a-payment

Some lenders/banks allow you to literally double your mortgage payment, on one, a few or all your payments! The feature is funny because you have to put the exact same amount as your regular payment. Lenders call this “match-a-payment” or “double-up-payment”.

4) Biweekly ACCELERATED payment

Most people believe a biweekly payment will always pay off the mortgage quicker, but that’s not necessarily true! Biweekly payments come in 2 flavors:

A regular biweekly payment will NOT pay off your mortgage quicker & accelerated biweekly payment WILL. The accelerated payment is slightly higher (approx 8% more).

I can help you with your “mortgage reduction” plan!

Is paying off your mortgage quicker is your goal? Every person, couple or family has a different situation. Let’s make a plan that’s perfect for yours!

Cheers to raising your net worth,

Natalie

P.S. Becoming mortgage-free isn't for everyone...

For some people, becoming mortgage-free isn't the intention or the goal. Their strategy? Leveraging their mortgage to invest!

Currently, the 5yr fixed rate is bouncing around 3% (March 2022). Now, I realize there's a lot of fear regarding rising interest rates, but rates are still at record lows! A smart (see Big Disclaimer #2) investment could bring you 7-10% return. Little bonus, when a loan is used for an investment, you can claim the interest!

BIG DISCLAIMER: I'm not an investment expert. I have experience getting mortgages for people that use this strategy and I'm interested in the topic.

#2 BIG DISCLAIMER: "Smart" Investment = "Know what the F*** you're doing" Investment. Investments are always a balance between risk vs. reward. How do you lower the risk and raise the reward? Knowledge. You can literally learn anything online! Get informed (from reputable sources). Watch videos, read books, listen to podcasts focused on investments.