A mortgage is one of the biggest debts you’ll ever take on. Unless you inherit money or win the lottery, chances are, you’ll need to take out a mortgage if you want to buy a house. For our first house, my husband and I did take on a mortgage – but we paid it off in less than 5 years! It was a huge relief for us to have it paid off. It meant we saved a lot of money we could use elsewhere that we didn’t have to spend on interest.
In this post, I’m going to talk to you about the three main things we did to help ensure we could pay off our mortgage quickly:
- Buy less house than we were approved for.
- Opt for bi-weekly payments.
- Put down a lump sum payment every year.
1. Buy less house than we were approved for
My husband and I were both working and making decent salaries. But we were house shopping in Toronto which wasn’t cheap! I think we were approved for a mortgage of over 500,000 dollars, but the idea that much debt just made me nervous. We certainly could have bought a much nicer, bigger house if we’d used that amount. But we would have been “house poor” and it would have taken us years to pay off. In the end, we took a mortgage of 100,000 dollars and paid for the rest of the house using savings.
2. Opting for bi-weekly payments
When you have a bi-weekly mortgage payment, you are giving the bank a payment every two weeks instead of monthly. I tied it to when my paycheck came in, so we’d always have enough in the bank to cover our costs – never had to worry about overdraft charges!
With bi-weekly payments, you actually ended up making one extra payment a year, which means you are paying your mortgage off that much faster. But you aren’t making any changes to your budget or payment schedule, so it doesn’t come as a surprise to you when that “extra” payment comes out of your bank account!
3. Put down a lump-sum payment every year
Another option we took advantage of was putting down a lump-sum payment. A lump-sum payment means that you put down a certain amount towards the principal once a year. Most banks have a limit on how much of a lump-sum you can put down (it’s usually a certain percentage, such as 10%, of the total amount you borrowed in the first place). This is a great way to quickly cut down how much of the principal you still owe – and you have total control over it. Even if you can only put 500 dollars down – it’s still helping cut down your principal.
Now it’s your turn!
You’ve now learned three great ways you can pay your mortgage off quickly:
- Borrow a lower amount than you are approved for
- Select bi-weekly instead of monthly payments
- Make a lump-sum payment each year
Some banks may charge a few for selecting a bi-weekly payment schedule or lump-sum payments, so check with your bank before you proceed with either of these options.
Happy mortgage-free living!
