Paying off your mortgage early can be tempting.  However, there are many factors to consider before you decide to pay off your mortgage early.

When should you pay off your mortgage early?

If you have a small balance remaining on an “open” mortgage, and you are not planning on buying again, paying off your mortgage early can be a good option.

Paying your mortgage off early can also be a good choice if you have an “open” mortgage, where the lender will not charge you for making prepayments.

When should you hold off paying your mortgage off early?

 If you have a “limited open” or “closed” mortgage, paying your mortgage off early can be disadvantageous.  For these types of mortgages, there is often a limit to how much can be prepaid annually – typically 10% – 20%.  If you prepay more than this, your lender will charge you.

You should also hold off prepaying your mortgage if you have other debts, such as credit card debt, that should be dealt with first due to the higher interest rates typically charged on credit cards. 

What can you do?

There are several options available to you that can help you save money in interest payments.  For example, you can opt for accelerated bi-weekly payments instead of monthly payments.  By doing this, you make 26 half-month payments, which means an extra monthly payment every year, helping you pay off your mortgage sooner.

You can also opt to keep your mortgage payments the same, even when offered a lower rate by your lender.  By maintain the same payments, even with a lower interest rate, you can make a bigger dent in your mortgage payments.

If allowed, you could also make a lump-sum payment.  Even if your mortgage is closed, lenders will often allow you to pay up to 10% – 20% of the original principal each year without paying a penalty. Even if you cannot afford to pay the full 10% – 20%, you can still make smaller payments that will reduce your overall balance.

A mortgage broker will give you the information you need to make the right decision on what type of mortgage is best for your situation.  By going over your file and discussing your financial goals with a mortgage broker, you are equipping yourself with the knowledge and advice you need to save you money. 

Whether you are renewing an existing mortgage or have just started looking to buy, call me today to discuss your mortgage goals.