Can you imagine life without a mortgage? Imagine the extra cash burning through your pockets. And the satisfaction of knowing your home is truly yours — without any financial obligations. There are several ways to pay down your mortgage and get out of debt sooner1.Here's how to turn this dream into a reality.
Find the best interest rate
Interest rates determine how much you spendon interest in addition to the principal. Generally, the higher the rate, the more you pay over the length of your mortgage.So, it’s important to choose a mortgage witha rate thatfits into your repayment plan.
Mortgages come in 2 interest rate categories:
- Fixed-rate mortgageslock your rate for an entire term. This makes it easy to trackhow muchprincipalyou pay back each month
- Interest rates onvariable-rate mortgagescanchangeat any time; your rate could be higher or lower, depending on the market. But lower interest rates meanyou paymore on theprincipal and pay off your mortgage faster
Interest rates vary on different mortgages, depending on their features.For example, you pay a higher interest rate on mortgages with cash-back benefits.With a cash-back mortgage, in addition to the mortgage principal you get a percentage of the mortgage amount in cash.You can use this money to buy investments, pay for a special event or renovate your home. But cash-back mortgages aren't available at all financial institutions.
Take advantage of prepayment privileges
Pay off your home quicker with mortgages that haveprepayment privileges.Lenders offeropen, closed and convertible mortgages Opens a popup.. Open mortgages usually have higher interest rates than closed mortgages, but they're more flexible because you can prepay open mortgages, in part or in full, without a prepayment charge.Closed and convertible mortgages often let you make a 10% to 20% prepayment. Your loan agreement explains when you can make a prepayment, so get the details from your lender beforehand. Also, decide which privileges you want before finalizing your mortgage.
Shorten your amortization period
Theamortization period is the length of time it takes to pay off a mortgage, including interest.The shorter the amortization period, the less interest you payover the life of the mortgage.You can reduce your amortization period by increasing your regular payment amount.Your monthly payments are slightly higher, but you'll be mortgage-free sooner.Find out how much you could save by shortening your amortization period with ourmortgage payment calculator.
Pay a big lump sum before you renew
When it's time to renew your mortgage, pay as much as possible. All CIBC mortgages are open at renewal, so you can pay as much as you want on your mortgage at this time.
Chooseaccelerated weekly oraccelerated biweekly payments
If you switch to an accelerated weekly payment schedule, you'll increase your mortgage payments from 12 to 52 payments annually— a payment every week instead of monthly, and one extra monthly payment every year.
If you switch to an accelerated biweekly payment schedule, you’ll increase your mortgage payments from 12 to 26 annually — a payment every 2 weeks instead of monthly, andone extra monthly payment every year.
Increase your mortgage payment
Increase the size of your regular mortgage payment totakea large chunk off your mortgage principal. Choose a higher payment amount when you arrange your mortgage, or at any time during the term. This lets you pay down the principal faster.
Example: If you increase your monthly mortgage payment amount by $170 from $830 to $1,000, you'll save almost $48,000 in interest over the amortization period. And you'll own your home about 8 years sooner.1
Make annual lump-sum payments
In addition to your regular mortgage payment, use your prepaymentprivilegeto make a lump-sum payment.It'sapplied directly to your outstanding principal if you don't owe any interest.Ask your lender how much you can prepayeveryyear. Paying lump sums every year saves you money over the course of your mortgage2. If you pay morethan the amount of your annual prepayment privilege, you may have to pay aprepayment chargeOpens a popup.on the excess.
Take advantage of extra cash, such as your tax refund or work bonuses. Also, increase your payment amount if your income increases. Makeseveralprepayments early in your mortgage.The more prepayments you make, the less interest you'll pay over theentire mortgageterm.
Should I pay off mymortgage or invest?
Investing is one way to raise money for a lump-sum payment. For example, you can invest your money in a tax-free savings account (TFSA). Then pay a lump sum once your investment grows. Compare rates on your potential investment and your mortgage. If investing offers a higher rate of return than your mortgage, put your money in an investment and watch it grow. If not, put a lump sum on your mortgage instead.
Learn aboutCIBC tax-free savings accounts.
