How To Pay Off Your Mortgage Faster
There are two primary ways to pay off your mortgage faster.
i) Make Prepayments of Principal, and
ii) Increase your Regular Payment Amount.
Prepayment of Principal
Applying a prepayment directly to your mortgage principal reduces the principal amount outstanding and will result in reducing the interest cost over the life of your mortgage. As the principal is reduced, less of your regular payment is applied to interest, and more goes to principal saving you money over the long term.
Some mortgages may have restrictions on how much borrowers can pre-pay without paying a penalty. Prepayment clauses included in the mortgage agreement outline the amount borrowers may pre-pay without incurring a penalty.
Increasing Your Regular Payment Amount
Increasing your regular payments has the impact of paying your mortgage down faster. As you increase your regular payment, the additional amount is applied directly to your principal. Changing the “payment frequency” by itself, will not necessarily increase the regular payment amount.
Regular monthly payments of $1000, would equate to $12,000 payment per year.
Paying the same mortgage $461.54 biweekly ($12,000/26 biweekly periods per year) would not result in an increase to the regular payment. However, if you made your biweekly payments $500.00 (half the monthly amount). You would pay $13,000 per year ($500 x 26).
Some mortgages may have restrictions on how much borrowers can increase their regular payment.
Always consult your mortgage disclosure and/or your mortgage professional when deciding what product is right for you. Review your mortgage disclosure/ documentation to understand the terms and conditions that relate to your mortgage.