3 Easy Ways to Save on your Mortgage

You know all those neat features on your mortgage that will allow you to get that sucker paid off lickety-split? How many of them have you taken advantage of?

If you’re like most Canadians, not many. According to Canada Mortgage and Housing Corporation (CMCH), “27% of recent homebuyers have either made a lump sum payment or increased their regular payment.”  That leave 73% of y’all doing nothing to speed up your mortgage payoff!

The easiest of the pay-it-off-faster options is the accelerated payment plan. Instead of making the equivalent of 12 monthly payments, you make 13 with the extra payment going directly to your principal. It cost just a few dollars extra a week, but the impact over the life of your mortgage can be huge. On a $300,000 mortgage at 6.5% over 25 years you’d save over $60,000 in interest just by choosing this option.

The option that sees the least action is the lump-sum anniversary prepayment. Most mortgages allow you to make an extra payment each year, which goes directly to the principal. But folks just never seem able to come up with the money. Hey, why don’t you make an RRSP contribution this year and then take your tax refund and use that to make an extra payment against your mortgage.

As for all that smart shopping you’ve been doing, it’s time to make it really pay. The next time you “save” money on anything you buy (you are such a smart consumer!) put the money you saved in a jar. When you get to $25, deposit it to a high-interest savings account. Then, when you’re closing in on your mortgage anniversary, make a prepayment. You can do the same thing if you get a raise; just move a little of your extra money to your mortgage prepayment savings and do some real good with your raise. Make a principal prepayment of $3,000 on that $300,000 mortgage just once and you’ll save over $11,500 in interest. Do it for five years and you’ll save $45,000. Do it for 10 years and you’ll save almost $69,000.

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Gail Vaz-Oxlade

Gail Vaz-Oxlade wants YOU! Join MyMoneyMyChoices.com to get smarter about your money and help others get smarter about theirs. Isn’t it time we eliminated financial illiteracy? Come find me on Google+ and on Twitter.

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44 Responses to “3 Easy Ways to Save on your Mortgage”

  1. This is very true but I sometimes get discouraged because I can’t really see what difference it is making. For example, if I put $3000 towards the mortgage, the total is $3,000 less, but it doesn’t seem like much progress because the rest of it is still there. Does anyone know of any easy to use online calculators where one can see what a difference it makes over time? Gail’s examples of what is saved over time are very encouraging and if I could do that for myself based on what extra I put in, it would be a lot easier to keep doing it.

  2. We just put a lump sum payment on today. We also do bi-weekly payments, and have doubled each payment for the last couple of years. Sometimes it feels like we have no money to play with, but we are now 12-13 months away from paying off our mortgage. Mortgage free at 45!!!!

  3. Gail, is there are maximum amount you can pay on this lump sum anniversary preyament you mentioned? Could you pay more even if it means taking a penalty (but would save you more in interest in the long term)?

  4. By making lump sum payments and increasing regular monthly payments, I was able to pay off my mortgage by age 45 as well. This meant tens of thousands saved that was available to do other things. I just didn’t want to pay all that interest, money I worked hard for, to the bank.

  5. We have been mortgage free for around 10 years now and if feels so good. We paid weekly payments. Also when the interest rate went down we kept the same payment to get it paid off faster.

  6. I think it was about 5 years ago, we got our mortgage statement, and only about $2000 for the entire year was paid towards principal. I couldn’t believe it. That’s when we started getting aggressive. We always had the accelerated bi-weekly payments, but then we started to double up. If money was a little leaner, we still tried to atleast add an extra $100. We have done the prepayments a few times, and will again this year. At renewal, interest rate went down, and our payment went up. We consistently do full double up payments now. On track to be mortgage free by 32! Perhaps a little sooner with more prepayments. I think the key is that we haven’t got the biggest house in the nicest neighbourhood, like all our friends have. We never bought more house that wouldv’e kept us unable to make all these increases.

  7. I knocked 5 years off my mortgage by increasing my monthly payment by 10%. I religiously double up my payments each month (knocking an extra month of my mortgage every time I do it). Add to that I’ve come up with the money to do a 10% lump sum for the next two years. I plan on being mortgage free in 5 years.

  8. I cant afford to fully double up my payments, but every year my mortgage company allows me to increase my automatic bi-weekly payment by 15%, so I have been cranking it up every year! It really is only a few dollars from the wallet so I dont even notice. if I get a bonus or extra gift money throughout the year I throw it onto the mortgage!

    Im glad I did because they keep saying the house market will crash and now I have a low enough mortgage on my condo that I wouldnt be in trouble if it did! I have also reduced my amortization period (according to my mortgage website) from 30 years down to 20 years- in only 3 years!

  9. @Nadine. Try making smaller, achievable goals such as getting to down to the next X marker (e.g., at 379k look to achieving 350k). Then once you achieve that, go down from there. It makes is much more manageable and you get to celebrate the little victories along the way.

    This strategy helps me get my head around our mortgage without getting discouraged.

  10. Laura-it depends on the terms of your mortgage. Read your paperwork carefully. The one we just signed says we can put up to 20% of the total on the anniversary payment before there would be any penalty.

  11. When we got our mortgage, we went with RBC….at that time it was a little higher interest rate than others, but the only institution that offered the double up payment 12 times a year (others offered only 4 times a year). So, we doubled up almost every month (think we missed 3) and used the yearly lump sums (10%). Closer to the end, we could afford to increase the payment (10%). The only feature we didn’t use was the biweekly (it should really be called bimonthly, as it’s twice a month!) payment instead of monthly.

    How could we afford to double up? Back then, the bank said we could get a 25 year amortization at $650/month. Worst case, we figured we could both work at McD’s and be able to afford it and other house expenses. But hubby had/has a good job (I’m at home) and we tried to stay in a tight budget, so we doubled instead. We could have gone with the double up payment amount with a different FI, but we’re very cautious, so the option of having a lower payment to fall back on if $hit happens appealed to us. In the end, we paid it off in 5 years, 8 months.

  12. We kept our amortrization schedule, and requested an updated one when we put a lump sum down on the mortgage. We could compare where we were to where we would of been if we hadn’t put the lump sum down. It kept us motivated, and able to pay off the mortgage in 5 years and 3 months.

  13. Nadine–any online mortgage calculator should work–I use the Scotiabank one, there is a line at the bottom that allows you to input various types of lump sum payments to see the results.

    Our mortgage allows up to 15% lump sum payment each year before being penalized, or 15% increase in monthly payments. I started doing lump sum payments a couple of years ago–ONE payment, at the time, shaved off 3 years of my mortgage. The plan was to, at the minimum, make at least one lump sum prepayment each year equivalent to one month’s payment. More if and when we can.

  14. We have a few strategies. One is to round up. Instead of paying $1148 bi-weekly, we round up to $1200. Easier to remember and that little difference is hardly noticable over a month, but huge over time. Also, when we get our yearly salary letters we increase that by $50. Yes, our tax refunds go to the mortgage too, so that is an extra chunk paid off. I found the time is a bigger incentive than the actual money we’re saving. Whenever we make that extra payment, our bank issues a new statement that reads: Your mortgage will be paid off in 8 yrs and 17 weeks, or whatever. Having that date in my calendar (and getting to move it up every so often) feels really good.

  15. I have yet to do this with a mortgage, but I did various ones of these with my student loan because there weren’t penalties for paying it off earlier. Boy could I see the difference. I would love to do that when the mortgage comes around.

  16. We’ve taken advantage of a 15% increase in payments, then double up that increased payment every month and add a lump sum payment every month on top. Not quite reaching the maximum of 15% prepayment allowed on the latter each year, but at our next renewal it will be difficult to continue this rate of paydown…but we’ll just save any extra and pay it all off when the next 2 year mortgage comes open (less than 3 years from now!). We’re in the position that a paid off mortgage will allow our current cash flow to cover basic living should anything ‘happen’ in the wider economy. And in better circumstances (i.e., ‘normal’) allows a few years of extra retirement savings I won’t really feel since we’ve been living on that much lower stream for some time.

  17. Before I bought my cottage I was upping my biweekly payments every year by the allowable 10%. My financial “advisor” at the bank was amazed. I’m not sure if I was the onlye one of her clients that did that or not. Right now I have been set back by the purchase of my cottage, but within the next year or two I should be able to increase my payments again.

    I will still have everything paid off before retirement. And the increase to the quality of our lives is fantastic. Right now I need that, especially since a friend just died yesterday at 43 from cancer. A good life balance is important. Enjoy life, but still get things paid off.

  18. We use the double up payment option. Every mortgage payment we are allowed to double the amount we pay and the extra goes directly to the principal. This is the easiest way because when you “save” some money, you can put it on your mortgage right away.

  19. Another tip i would add is keeping an eye on interest rates and shopping around. Although we broke the mortgage with our first lender, we did the math and the penalty fee (just over 2k) was worth it as we switched from 3.7% to 2.99% for 5 years fixed. So my advice is do not be afraid of the word “penalty” just do the math to see if it is worth it.
    Additionally, before switching over, we took advantage of a blend and extend option offered by our first provider. The savings weren’t as significant, but it spared the hassle of switching providers.

  20. We went with the bi-weekly payment option which will shave almost 4 years off our mortgage. We have about $18K debt that we are hoping to pay down first – $9,000 at 11.99% ($3,500 of which our tax refund is going towards – my husband was laid off twice in three years and we now know the importance of an emergency fund), $6,000 line of credit at 5% (this is DH’s bad – fixing up his hot rod), $1,200 BNPL furniture from when we bought the house last June (it was $2,500 and we are well on track to have it paid off before the interest clock runs out) and $1,800 furniture we bought on 36 equal monthly payments NO interest that we are well on track to have paid off on schedule. Once each is paid off, I would like to repurpose the payments ($775/month) to increasing our mortgage payments and savings (currently about $430/month between us) so these techniques are great advice as we continue to improve our finances!

  21. When we recieved that first amortization schedule that told us in 5 years we would pay $60 000 and that $40 000 would go to interest….I felt sick!! We were Double income no kids, so we basically lived off one income, and put the other income on to prepaying the mortgage by doubling up payments and making anniversary payments. Within two years our amortization went from 25 years to 8. When I got pregnant we stopped the doubling and put that money into an emergency fund. When baby came I called the the mortgage company and asked them to rework the mortgage back to a 25 year amortization. Our payments were ridiculously small, which made it possible for me to stay home. As the hubby started to earn more money we started up with extra payments. Then he started earning some good bonuses and we’d put those toward the mortgage on it’s anniversary. We are in our early 40’s and have been mortgage free for 3 years.

    I enjoyed reading all the responses so far!! So happy that other people are saving themselves thousands in interest!! It would be nice to find saving accounts and mutual funds that earn 10%, but these days it seems the best way to save your money is to “save” money by not paying interest.

  22. Katy, bi-weekly and bi-monthly are definitely two very different things. Bimonthly just means your monthly amount is split into two payments, and you don’t pay any extra. It just smooths your cash flow over the month but you pay 24 payments a year instead of 12. Bi-weekly means every 2 weeks, for a total of 26 payments per year (or equivalent to 13 months). Those extra payments go entirely toward your principal which reduces the amount of interest you’ll pay over the life of the mortgage. You can also pay every week, but the benefit isn’t quite as large as the one you get by moving from monthly to bi weekly.

    We pay bi-weekly, round our payments up a couple of hundred dollars and every couple of weeks I throw whatever excess we have at the mortgage as a lump sum payment. Our mortgage terms allow us to pay up to 15% of the original amount of the mortgage every year without penalty and it can be in the form of 10 small payments or one big one and no need to make it on the aniversary of the mortage. When choosing and renewing our mortgage the terms for extra payments were as important to me as the interest rate. A great rate is one thing, but if you have limited options to prepay you’ll be paying at that great rate years longer than necessary. I’d rather pay a fraction of a percent more if I have to and have the option to pay off extra in multiple ways through the year.

  23. We are using most of these methods to pay down our debts faster, then hopefully to save for a downpayment. What is nice about that is there is no penalty for paying off a loan early.

    A coworker uses his points from RBC credit card to pay down his mortgage.
    They use their credit card for almost everything and accumulate a lot of points which can be converted to gift cards that can be used to pay down mortgage, loan, line of credit, and even savings held by RBC.

  24. Thanks Gail for re-posting this info. For anyone who is interested, the following online calculator can allow you to run different prepayment scenarios:

    http://www.fcac-acfc.gc.ca/iTools-iOutils/MortgageCalculator/MortgageCalculator-eng.aspx

  25. avatar Creativeme Says:
    February 26, 2013 at 2:01 pm

    Interest(dot)com has the best calculators I have ever seen for figuring out how different payments and lump sums affect the bottom line. I follow them on twitter too… Good stuff comes up regularly.

  26. I use baby steps. We are currently paying off debt and that has been the focus, but recently my bank started being able to transfer to your mortgage principal at any time online, as long as you don’t exceed the 20% yearly prepayment limit.

    So, even though I don’t have the cash to spend on a large lump sum, every month I round my mortgage to an even number depending on how rich I feel (yes I have transferred 0.86 to the mortgage – thank you free banking), and anytime we get even a small windfall I try to put 10% of it on the mortgage. Also, anytime I have a dollar or two left in my account after I have allocated my spending for the week, it gets transferred too.

    I know it doesn’t sound like much, but that accounted for over $1000 in the last 6 months and I didn’t even realize it was missing.

  27. @Nadine I have been playing with ING’s mortgage calculator here http://www.ingdirect.ca/en/mortgages/index.html# You put in your amount, rate etc, then it says “See how much you can save” and you put in lump sum and regular increases and it will show you very clearly how much faster you can pay off your mortgage in each scenario. It’s great! I don’t even have a mortgage yet but I already feel motivated to amortize for 20 yrs but pay it off in 12 or so. The savings are huge!

  28. We do weekly accelerated payments – that takes our 30 year mortgage down to about 26, and it’s easy to remember (mortgage payment every Monday). Right now we are focusing on paying off our vehicles and building a big emergency fund, but after that I’m excited to start throwing extra at the mortgage!

  29. avatar S. K. Beaverson Says:
    February 26, 2013 at 7:36 pm

    Nadine – for motivation, I made a house-shaped diagram out of colored blocks in an excel spreadsheet. I then printed it and hung it on the fridge. Each block represents $1,000 that’s left to pay on our mortgage balance. Each $1,000 gone gives me a chance to X out a block. Heck, each $500 lets me at least make a \. It’s simple, but it is a positive motivator.

  30. Kristi, our situation is like yours. Dual income, down to one.

    Although we had 2 kids when we started the mortgage. We got a mortgage based on just one salary. We bought a fixer upper house. We lived on one salary, used the second one for house fixups and extra mortgage.

    When I got pregnant with our 3rd kid, I had to quit work due to illness. Then we were surprised with a 4th kid within the same year. So now I’m staying home.

    We were fortunate/planned well… We paid off our house just before I left work. It took us 5y 8mo.
    Now we are a one income family with 4 kids. Although things are tight we would never be able to do this if we had a mortgage.

  31. When I had a mortgage on my principal residence, I was permitted to increase my bi-weekly payment by 20% every calendar year. I took advantage of that option and managed to shave my 25-year amortization down to a 6-year amortization within 3 calendar years. Even the bank was amazed at how much of a difference those increased payments were making in reducing the length of my mortgage amortization. It was at that point that I realized that few people were taking full advantage of the prepayment options that are available to all mortgage customers.

    Now that I have a rental property, I’m making extra bi-weekly payments of $100 to that mortgage when my budget allows me to do so. There are a few other financial items that take priority over extra payments to the rental property’s condo, i.e. TFSA & RRSP contributions, property taxes, annual insurance premiums. Once those other financial items are crossed off the list, I will go back to making extra payments against that outstanding mortgage.

  32. Gail is definitely referring to the bi-weekly payments. I make bi-weekly payments as well as lump sum payments whenever possible and we encourage others to do the same. I think the problem is most Canadians aren’t able to see how much they are saving or don’t know exactly what they will save by making these lump sum payments. i think if they knew more about it, there would be more pressure for them to save and take advantage of the mortgage prepayment options.

  33. Wow-this post is just full of good, solid, useful information. I do not have a mortgage and do not ever plan to have one. I am definitely a renter-person who cherishes her independence but also realizes that, in the very near future, I will be uprooting and moving to take care of my elderly mother. I hold that promise near and dear to my heart. She, however, paid off her house years before the 30 years were up and now lives very well in her retirement.

    As a few of you mentioned, this same lesson can be used when paying down debt, increasing an emergency fund, depositing to a retirement fund (in some cases). And yes, .86 is NEVER too small an amount!!! I have added up amounts that small, sometimes even smaller, accumulating until I have $5 or $10 and then I make a payment. It becomes something of a game, but putting a few extra bucks toward a $200 credit card balance makes a difference.

    Thanks to everyone who posted, and of course to Gail, for your comments and the blog. I have learned quite a bit today and want to thank you all for sharing your experiences. Gail, you keep my world moving forward.

  34. When we first got our mortgage we got paid twice a month, 15 + 30. We took our monthly payment amt the first 5 yrs or so and split it into 2 payments per month. Just doing that we dropped our repayment from 25 yrs to 17 yrs. We finally started getting raises so for every raise we got we would figure out what it would be per month and we would increase our payments by 25% every 2 wks. Just by doing this we managed to get the mortgage paid off in 14 yrs and still get to add part of the raise to our budget for things that we really wanted. Unfortunately last summer was a new septic system, and roof so we had to get a homeowners LofC to cover the costs because it was well over what we had in the emergency fund. Now we are trying to get it paid off ASAP so whenever we have extra money I dump it against that since with this there are no payment restrictions as long as we pay at least the minimum. With luck we will have it gone by yr end and we can start saving more in our vacation and project accounts. We have agreed no major vacations till it is paid off no matter how cold it gets this winter or how much we want to get away.

  35. We do our mortgage weekly…2.64% is a great variable interest rate! It used to be 1.99%! Weekly, I find is the best option for us anyways… We are on our way!

  36. avatar JS Ritchie Says:
    February 27, 2013 at 3:57 pm

    Be mindful that banks aren’t there to save you money. They will rarely explain the difference between biweekly and accelerated biweekly payments. The former doesn’t save you anything really; it just divides your yearly total into 26 payments instead of 12. And you may be able to negotiate a reduced rate if you don’t plan to use any of the early prepayment options.

  37. When we got a mortgage the rate was 7%. We took out a bi-weekly mortgage paid off in 23 yrs. The next year the rates went down to 5%. We knew we could afford the same payment, so when we re-financed we went down to a 20yr mortgage paid off in 16yrs. We saved over $80,000 in interest. It doesn’t seem like that extra payment makes a diference, but it adds quickly!

  38. Here’s a Prepayment calculator where you can see the benefits of making prepayments or increasing your mortgage amount. Select the “Prepayment” tab when the calculator opens:

    http://www.manulifebank.ca/wps/portal/bankca/Bank.caHome/Home/mortgage%20calculators/bnk_pers_mort_payoffcalculator/

  39. Thanks for your great article.I have gathered so much knowledge from it.Really 3 Easy Ways to Save on your Mortgage is much helpful .I have been working in Second Mortgage Hub. We specialize in;
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  40. We had always done bi-weekly payments, but at some point, they changed and added accelerate bi-weekly payments (but our bi-weekly converted to “just” bi-weekly) and didn’t inform us.
    Bi-weekly payments gives you the extra month of payments. that’s all. Accelerated bi-weekly gives you the interest reducing advantage.
    Regardless, we always did the best to what we could afford, putting an annual payment where possible and increasing payments if possible. We also “broke” our mortgage and paid the penalty when rates dropped by 3% (9.65 to 6.5). 18 years later, we are months from being mortgage free and in our early 40’s.

  41. @ Nadine – I share your pain and I like the idea someone posted about ‘don’t worry about it getting to zero, get excited about the next level’. So for instance we started with a mortgage of $405,000 in 2007. And trust me when I tell you our house is not the biggest house on the fanciest block, far from it. So six years later, of biweekly and increased payments, the balance is $308K. That gets a little discouraging. BUT instead I just think ‘this year my mortgage will start with a 2″ – that makes me feel a lot better. It’s a marathon, not a race – while some people can pay off their mortgage in 5 years or less, I know we can’t – not with daycare and other costs killing us. But to do it in 13 would make me pretty happy. I liken it to turning a big ship around – it takes a lot of energy to get it half-turned, but then it gets a lot easier the last half turn.

  42. Another great way to save on your mortgage is to negotiate! Never take the first rate your bank offers you, make sure to let them know you are exploring all options. Use a mortgage comparison website to get an idea of what other lenders are offering. The big banks very rarely offer the best rates, make sure to make them work for your business! When I renewed my mortgage a few weeks ago I got about 0.45bps off their rate.

  43. I took out a mortgage with a 35 year amortization back in the summer of 2010, and now in March of 2013, my amortization is down to just 20 years. To achieve this, I increased my bi-weekly payments by just $36 and make a habit of going to the bank about once every six weeks to make a lump sum payment of between $200 and $400. My mortgage allows me to make lump sum payments as often as I want during the year up to 15% of the original amount borrowed each year. But really, increasing your regular payments, even if just by a small amount as I did, really makes a difference.

  44. avatar melaniesd Says:
    March 10, 2013 at 7:47 pm

    Way to go Mark!!

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