5 Top Strategies to Become Mortgage Free Faster
If you’re one of the people who agrees that the best possible mortgage, is no mortgage at all, then this article is definitely for you. Here we’ll take a look at 5 of the most effective ways to clobber away your mortgage, save thousands – or even hundreds of thousands of dollars in mortgage interest, and how an average person can become completely mortgage free in 5 years or even less.
At Altrua, as mortgage brokers, we are in the business of helping you make mortgage approvals easy – but as financial planners, we also see it as our purpose and responsibility to help you pay it off and live with more freedom.
1. Bi-Weekly Accelerated payments.
The simple strategy of making bi-weekly accelerated instead of monthly payments automatically sets you up for mortgage clobbering success. For example, on a typical 25-year amortization, you can shave off about 4 years, by paying bi-weekly accelerated. This may not sound like a lot, but that’s 16% less time you’ll spend paying off the mortgage and it will more than likely save you thousands of dollars of interest. A simple strategy, but we’re just warming up. Consider bi-weekly payments along with any of the other strategies mentioned below.
2. Payment Consolidation.
This strategy works when you have some existing payments such as a car loan, student loan, line of credit or any other debt. The strategy would require a debt consolidation during a move, or the consolidation can easily be accomplished any time without moving, through a mortgage Refinance. They key to this strategy is that you take the payment that you were making on your loan (or credit balance repayment), and begin applying it to your mortgage as an additional, automatically recurring mortgage pre-payment.
So, for example, if your regular mortgage payment was $1,500 and your car loan was $500 – then consolidate your car loan into the mortgage and make your new mortgage payment $2,000 per month. With the lower interest rate mortgage, you’ll pay off that debt much sooner within the mortgage, and then the additional payment will continue to chip away at your mortgage at a rapid pace after the debt has been repaid.
3. Pay Raise and Bonus allocation.
This one is a bit more straightforward, but it can have amazingly effective results. When you get a pay raise, instead of upgrading that furniture or taking that extra trip, consider putting it towards your mortgage. If you can get used to living within your existing budget, and comfortably get by with what you’re already getting paid – then any additional cash flow can be applied to mortgage prepayments. This can be one of the most effective AND realistic strategies if applied faithfully. Many have seen their mortgage paid off in HALF the time using this kind of strategy.
4. RRSP and other tax refunds.
There is an age-old debate about weather it’s best to buy RRSPs or pay off your mortgage faster. While there is ultimately no ‘right’ answer that we will pinpoint here, it can make sense to buy RRSPs and when you get your tax refund as a result of the purchase, allocate these funds towards paying down your mortgage. This could amount to a nice, balanced financial strategy that builds wealth and lowers debt at a good, steady pace. The same strategy can be applied with any kind of tax refund.
5. Ultimate mortgage annihilation.
It is realistically possible for most people to pay off their mortgage in 5 years – or even less. Although it can take real dedication, a bit of creativity, and some sacrifice (depending on how you see things). We have an entire article written on how to pay off your mortgage in 5 years that can be found here, but for now we will emphasize a few key points, illustrated with an example:
- Start with a mortgage that is not the maximum affordable. For example, a $350,000 home purchase with 20% down payment requires a $280,000 mortgage. Family income of $50,000 per person for a $100,000 total.
- Allocate 35% of this family income towards paying down the mortgage. In this case, that’s $35,000 towards the mortgage per year. This leaves about $40,000 to live on after taxes, for all other expenses.
- Attain part-time work or self-employment that produces an additional $20,000 after tax per year between both family members or home owners.
- Rent out a room or basement for $600 + per month. This is an additional $7,200 + per year income that can be put towards the mortgage.
The total income allocated per year towards the mortgage, in this case, is $62,200 per year or $311,000 over 5 years which would pay out the mortgage with interest.
These strategies of (1) Buying within a certain price range, (2) Budgeting for rapid repayment, (3) Additional income earned, and (4) renting out a room or basement can be customized to your own situation. Again, check out our article here if you are interested in customizing a strategy like this.
Paying down your mortgage faster is an excellent financial idea, and your house will feel different when it is no longer partially owned by the bank. There’s a sense of satisfaction here that’s hard to match through other investments. Ultimately, mortgage freedom means more money allocated to other areas, and more freedoms and choices to live and play exactly how you want to.
For more information contact us for a free, customized mortgage free faster plan.