4 Ways To Pay Off Your Mortgage Faster (Plus Save Money On Interest)
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- čas přidán 11. 07. 2024
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You may be wondering why you would want to pay your mortgage off faster when you have a 1.5% or 2% interest rate, but a lot of people have the financial goal of paying off their mortgage faster. If you would like to be mortgage free by retirement, in this video we'll discuss 4 ways to pay off your mortgage faster that can potentially take several years off of your mortgage timeline.
If you have any further questions about this video's topic or any financial planning questions in general, I encourage you to find a certified financial planner in your area or book a consultation with us to get your savings plan on track. You can learn more about our services at www.parallelwealth.com/planning or email Info@Parallelwealth.com
OUTLINE:
0:00 - Introduction
2:10 - Example Facts
3:41 - 1. Accelerated Weekly Payments
5:21 - 2. Additional Monthly Lump Sum
6:57 - 3. Additional Annual Lump Sum
8:25 - 4. Adjust Amortization Schedule
12:31 - Bonus Tip
14:21 - Summary
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DISCLAIMER: The videos and opinions on this channel are for informational and educational purposes only and do not constitute investment advice. Adam Bornn is not registered to provide investment advice and as such does not provide recommendations - those looking for investment advice should seek out a registered professional. Adam is not responsible for investment actions taken by viewers and his content should not be used as a basis for investment trades.
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I paid of my mortgage last year. Took me 5 years. $570,000.00
I lived fugal and spent nothing in 8 years ..I’m so happy.. I’m 53, and single.completely no debt…
Good for you. Now you can relax and put your feet up 😊
But you have 570,0000$ in asset that you cannot use to spend and it will be wasted when you die 🤔
@@philjans1silky comment. Must you talk?
I have a 30 yr mortgage and I pay it bi-weekly. On top of that I pay more every month - what I can do basically. Anyway, after 7 yrs of that my mortgage is literally half of what it was to begin with. The first 3 years I made extra payments aggressively - I had no life, but I was determined. Before I have to renew at a higher rate, I am putting as much extra $$ towards it as I can. I'm trying, I'm trying....... wish me luck!
At 26 years old with a mortgage (small condo) I'm glad I found this video. I'm already starting to see that the earlier you do things in life, finances are certainly like this, the less drastic they have to be to yield the desired result(s)! Now.... to figure out how to retire at 40 years old..... Probably should have started on that goal in the 6th grade...
We’ve been paying max extra since day 1! We have had our mortgage for 3 years and hope to have it pd off within the next 5 years! Started at $150,000 and are down to $80,000 already! Yay!
Thank you so much! It’s very informative ❤️❤️
Thank you Adam! I didn't know about #4 until I heard this video. Thank you!
This content is helpful for us especially tips #4 .. God bless .
Awesome tips. Especially option number 4. Never knew that. Thanks Adam!
We already pay biweekly. Will try to
Do a lump either monthly or yearly.
We live well below our means and purchased a nice house but not anywhere close to what we *could* afford. We are currently paying it down close to 4x faster then normal. Love your balanced advise. It's easy to follow
These videos are gold. I knew about #4 and I still did it 🙄
Good video. I bought my first property 2 years ago, and went for the 30-year amorization schedule. But I've been making extra payments so that when I get to the 25-year adjustment after 5 years, my monthly payment will still be lower (or hopefully at par if interest rates increase.) The point is that, if I lose my job or suffer disability or something, I'll be able to afford the mortgage, even if I have to resort to a job that doesn't pay as much.
Thank you Adam
Fantastic video. Thank you for providing examples with numbers. Subscribed.
Thanks Luis and welcome to the channel.
Good presentation, I like it, in spite of I know all of it 😀, good job
Great video !
Every person who wants to buy a house should WATCH THIS.
I've have done a couple of these strategies, and paid off our first home...not in 25 years...but in 17 years !!!
We went bi-weekly and put any extra we had on to the principle.
The biggest thing we did was...having a OPEN MORTGAGE. Our savings were huge.
Great tips! The wife and I will be mortgage free at 41 years of age in the next couple weeks and all these tips helped to get us to where we are now financially. Mortgage poor by choice was our main goal for the past 16 years since we bought our first house now living in our third out in the GTA. The first tip here in this video is IMO the BIGGEST! Never ever go monthly and always always go accelerated weekly. Such a small uptick in weekly funds coming out for a huge gain in the long run. Also take a look at how much extra you can put in our mortgage every year (15% of the original mortgage) and try maxing that out if you can. Increasing your weekly payments help out a lot as well.
Congrats Steve! Well done. Make sure you celebrate when it's paid off.
At 1:50, Really nice principal vs interest
Great advice! Greatly appreciated...😀
Thanks for watching Colleen!
Our property gained value significantly, so we bought a another rental property with the equity. Would be nice to have a modern kitchen or new car but passive income will pay the mortgages itself and give us a lot of equity when we retire.
Best thing I ever did financially was borrow to invest early in my career. Paid down the mortgage with any extra cash, bought everything with cash and borrowed for investments and used the interest against my taxes. Similar to the Smith Manoeuvre but not tied to mortgage pay down. Luckily I started almost 20 years ago and it has worked out well with low rates and rising markets. I can't say I'd do the same in the currently market today but that might just be me getting older and wanting less risk.
#4 is a trap I fell into for sure. Been living in the house for 20 years and still have 16 years left (and a higher amount left than the original mortgage due to rolling in renovations, etc. into the mortgage)! I've woken up though and now pay bi-weekly, pay extra on top of each payment, and am putting my tax refund (which is substantial) on the mortgage each year. Will have it paid off in 7 years now.
Matt, it's a trap that most fall into so you are not alone!
@@ParallelWealth
Can u explain where the trap is if I keep my mortgage as it is for 30 years? Do u mean it's a trap because when the interest increases I'm paying more in my monthly payment?
@@khaledabdelwahab9455 the trap is that when you do a mortgage you typically have 2 time frames attached to it. First is the amortization (let’s say 30 years) and second is the time frame you’re locking in your interest rate at (5 year fixed or 3 year variable for example). Where banks and brokers get you is when your lock in period ends and you redo your mortgage they will often automatically provide terms based on the 30 year amortization so even if you’ve had the mortgage for 5 years and renew for another 5 years at a new interest rate the amortization is once again extended to 30 years rather than now being 25 years.
Me too. In house 23 years but have 17 years left and 120k more mortgage owing. Renewed in April and didn't borrow more and went from 20yr to 17yr by paying $40 more biweekly.
Impressive. Good for you and your family.
My mortgage is $840 per month, that's with home insurance rolled into it. The actual mortgage payment before everything is about $538 (it's actually broken down in our binder). I pay a but extra on the mortgage each month and I put in the notes to put the extra towards the principal.
Actually Adam, you bring up a great point early on in the video. I agree with you at these rates it doesn't make sense to invest your savings vs paying off the mortgage. However, at what point should you be looking to pay off your mortgage vs putting more money into your investments. Having too much money in an RSP can be a problem down the road. I guess the question is how much is enough in an RRSP or TFSA. Even just investing in BCE with a dividend of 5.61% in a taxable account and paying taxes on the dividends, still beat paying off the mortgage. However, if interest rates raise paying off the mortgage might make sense but it will be harder to do.
Nice video
Dave Ransey rocks!!!
Thank you. Can you use your RRSP to pay the mortgage - borrow from yourself.?
Another great video. I always learn a lot from your channel. But this time I already use tips 1 3 and 4. The monthly one is something we will work into our budget soon. Tip number 4 is huge. I’m lucky our mortgage broker was solid and kept out Amortization to 30 years then 25 and we just did a 20 year one. Just by increasing our by weekly payment by 20 percent (yearly) we have knocked years off the mortgage. As always appreciate the videos Adam.
Thanks Jagjit.
It all depends upon “competing benefit” such as from investment which until very recently paid close to 0% for risk-free GIC’s. But now say if mortgage-rate is 5% & GIC rate is 5.25% for 1 year, it makes sense to put the annual lump-sum into the GIC vs putting it into the mortgage even though GIC compound only yearly vs the mortgage compounding half-yearly because the rate difference is minor. In addition with GIC, the cash is more liquid, once it disappears into the mortgage it is gone. 😊
Yes bonus is the way to go, downsize from big city into smaller town with bigger house and land for cheaper so you get to keep a smaller mortgage for the bigger place in smaller town. And you can invest that extra you made so it generates some extra income, instead of wasting it all on reno.
Bi-weekly payments or accelerated payments only work if you intend to stay in your home for the full term of mortgage. If you sell it 5 years down the road all you’ve done is pay extra interest off the front end of mortgage, it would be more beneficial to make a monthly payment and use the extra payments as principal only payments.
@ParaIIeI WeaIth I’m assuming this isn’t you Adam, you don’t strike me the type that would say this 😂
I was thinking of doing a cash-out refinance and putting it right back into the house.
We have a secured home line of credit for a crazy amount of close to $400,000 that we could access to do renovations, repairs etc….We never touch it. Balance is zero. Yes, in a few years we want to do a new metal roof, replace some flooring, redo a bathroom etc…We save and pay for each renovation at the time we do it. Would I love to just get everything done at once? Sure, but I won’t go into debt to do it.
Our mortgage came up for renewal in late 2022. We asked for an additional 32k (for renovations) amortized over 30years at 4.6%...we pay weekly and make an additional payment every month. We're hoping interest rates will be better in 2024. Then we'll renew at 20yr amortization with extra monthly payments
I'm in the rare group I guess. I put larger than normal down payments on every purchase. I sleep very well at night, no worry if interest rates rise.
I did all the 4 steps even before watching this video…never did the 30-yr mortgage but the first one was 25yrs at 5.2% fixed 5yr term back in 2007! then soon as I renewed only renewed terms every 3-4yrs finding lowest interest rate until the final term was only paying 2% int rate at variable. Paid off my mortgage in total 12yrs (2yrs ago) the same time I became debt free! I believe in this video and it’s true it can work!
Amazing to hear! Congrats 👏
@@ParallelWealth keep putting out very helpful and informative videos! More subs and likes to your channel (am already subbed)…cheers!
#4 is very interesting. Thanks for the tips. Shall I move my RESP to the TFSA contribution room I have or shall I keep them in RESP and for how long?
Keep in RESP and pull out as quick and efficiently as possible. You don't want your kids to be done with money left in it.
Absolutely excellent informative videos. Do you have any videos on annuities?
Sharon I don't yet. But to my surprise it's been requested a few times so will do one soon.
That is great news. I am trying to figure out if I want to continue to pay someone to invest this Lira or if i want to collect the money monthy like a regualr pension. I just don't have much information on Annuities and can't get much feedback when I ask.
Fair enough. Hold off for now and I will do a video that will hopefully answer that for you
I live like a hobo and literally put every cent I can onto my mortgage. I'll start living a little and get back to retirement savings after its done. I hope I don't die before then.
I think it should be a balance…live happily while saving as much as you can than going the extreme either way…you said it hope you don’t die before retirement. My thinking is you can save up as much prior to but not enjoy life and if something bad happens you’re screwed! You can’t bring your wealth to the grave once you die!
I would love to have a discussion with you regarding this. I believe there are significant factors such as inflation and opportunity cost which are often overlooked when comparing loans and whether to pay them off early or not. When these are factored in, it almost never makes financial sense to pay loans off early. I think it's important for people to have a good understanding of why this is the case.
In these low interest rates I agree. But financial planning comes down to goals and objective - then fitting the best plan within those parameters. I personally don't rush to pay off my mortgage - as mentioned in the video. But for many the goal is to be mortgage free. If we can do that and still meet retirement goals, then making a small spread on the interest rate differential shouldn't be a driving factor.
As for inflation - it's factored into the video.
While these comments are accurate from a mathematical perspective, I would be willing to bet that people who pay off their home early never regret it.
What can you share about the Smith Manoeuvre?
Fantastic content Adam! Thank you for all the help you give us.
May I have a question? if at the renewal i’ll be at 25yr amortization and i’d like to lower it to 20 or 15 yr will the bank simply rase the monthly payments or that’s considered a refinancing and i need to pay fees and have to go through qualification all over again?
Thanks so much
Not if you do it at renewal. You can reset term to whatever you like at that time
@@ParallelWealth great, thank you for the reply👍🏻
I'm not sure how it is in BC, but in Ontario, your amortization must stay the same on a renewal. Changing it will trigger a refinance. To clarify, what I mean is it continues down the original mortgage schedule. So on a 25-year amortization after 5 years, your renewal will be on a 20-year amortization and so on. If you go to your bank/broker after 5 years and say, bring me back up to 25 years, they will have to refinance the mortgage, which will cost you fees.
I love it!! The way it should be.
Good summary. Have you looked at hybrid arrangements such as the Manulife One arrangement? They seem to present some interesting options and some different risks. They seem to be like an LOC. When my mortgage got to the point that I could pay it off with my LOC I did that. I could then pay whatever I wanted above the minimum whenever I wanted. I was debt free quickly. Obviously my LOC room was restricted for a while, but that was covered by other arrangements.
The Manulife One is great for a small % of ppl in my opinion - and that is ppl who are diligent to not spend on discretionary items. I know people that have had great success with that product, but could be very dangerous for many. The rates are also higher than a typical mortgage, so I see it as a better fit when the mortgage is smaller. It's also a good way to run a reverse mortgage for income in retirement.
@@ParallelWealth that makes sense. Lack of discipline would spell big trouble quickly!
Question for you. which one is better, A) paying 100 per month extra principle+interest. B) 1200 per year extra principle only. C) 100 per month extra towards principal only?
thanks
One bit of advice for those who have or having a high ratio mortgage is never to pay CHMC premium as a lump sum upfront and never add that to the financed amount.
I did and when I refinanced after only 2.5 years into 5 years fixed mortgage that CHMC premium for the remainder 2.5 year is never recovered.
like 👍 your videos thank you
Could you confirm for me, I'm having trouble understanding. If you don't pay CHMC as a lump sum or add it to the mortgage, then how do you pay for it?
It's September 2022, with interest raising (and more to come) paying the mortgage sooner will be back to important :)
💯 agree
Bank of mom & dad has helped our kids with the lump sum each year😅
Hi Adam. Very informative video. Thank you.
We have a mortgage with BMO and have been paying around $100 bi-weekly on top of the original amount but doesn't seem to help amortization date.
I noticed having around 10K onthe so called mortgage cash account not sure what can I do with that.
If I ask the bank to go into weekly payment with some more extra payment will that accelerate the amortization and is that a breaking on the mortgage agreement that can lead to fine?
Remon you would have to double check with them. Not sure what mortgage cash is, but sounds like you are creating more lending space. I would ask them to make sure your extra payments are indeed reducing your amortization and if not, how to do that without penalty.
Tips #1-3 = just pay a little more. No different than saying take lesser years amort with slightly higher payments.
If I renew my mortgage after 5yrs and my payments is lower the high amount I use to pay can I tell the bank I want to remain paying the same high amount payment when I'm doing my renewal?
Adam, this is unrelated to the video but I was wondering: Is there ever a case where it's better to have investments in an un-registered account rather than a RRSP? I am in the lowest tax bracket right now and I expect to be in a higher bracket upon retirement due to an inheritance. The majority of my current investments are in non-reg account and a maxed out TFSA. Should I even bother with putting more into my RRSP or will I actually come out ahead by leaving my money in a regular investment account? I love your channel, it's really great.
Stick with Non-Reg if you aren't in a high enough tax bracket to take advantage of the RRSP - which sounds like is the case.
@@ParallelWealth thanks very much!
My biggest concern is how do you go about doing that without the mortgage company adding that money to monthly mortgage payments? For example years ago I send in a few thousand dollars extra to my mortgage company and I was shocked when they sent me a letter stating that I was paid up for the next few months on my mortgage payments. I was so upset! I had to call the mortgage company and argue with them to let them know that I was not paying extra monthly house payments, that it was strictly for extra principal payments. This time around I want to avoid all that, so if you have any suggestions for me I would really appreciate it! Thank you!!!
I was told when you pay a lump sum to make sure to tell your lender to put it against the principal only. I understand some lenders tend to use it for both principal and interest
This is really an old wives tale at this point.
You should change it to paying off yor down payment faster...to many people borrowing from government and family to make a purchase in the first place .
Would you recommend putting a lump sum of money on the interest payments principle payments to cut down the amount of time of years paying on the mortgage
If your goal is to be mortgage free, then this could be a great idea. I always look at interest rate in determining if maying down mortgage faster makes sense. With rising interest rates it's starting to make more sense.
Are there any major risks of retiring with an unpaid mortgage? For example, if you are drawing money from your TFSA, it doesn’t show up as income. Will it be difficult to renew or refinance the mortgage? Many people are struggling to even buy a home. Others will struggle to pay off their mortgage before retirement age. I’m not opposed to carrying low interest debt into retirement while keeping my extra money invested instead of paying off my mortgage earlier… but wondering if there are any major risks in doing so.
If you are comfortable then no risk. Your current lender will always take you back - so you may have less options, but there will always be a decent one.
The risk is that interest rates increase and you default
Is it advisable to do the same for rental properties too?
Pretty much the opposite!! Keep the mortgage as long as you can for the interest deductibility.
I have a 30-year mortgage. After paying it for 20 years, does it still make sense to make accelerated payments? I can no longer deduct the interest from the taxes. Should I pay off the mortgage, or invest somewhere else?
As mentioned on the video it's personal preference. I like to invest over hammering down the mortgage with current rates, but if the goal is mortgage free then focus there. Either way you are making steps to build your net worth.
Would you recommend paying off my first mortgage faster if my goal is to have several income properties
I never recommend paying off rentals too quickly as you get the tax deductibility. If you are talking about your PR, then will depend on goals and cashflow. You may need the cash to buy your rental properties - hence not paying down your PR mortgage.
@@ParallelWealth just the answer I was looking for thank you kindly for replying back.
Is there a difference between paying an extra $100 bi-weekly or $200 once a month? Would I be farther ahead by paying the $100 twice a month?
Well bi weekly will have 2 extra payments in the year...so without running numbers I'll assume you are further ahead.
@@ParallelWealth maybe I wasn't clear. I am on bi weekly payments right now. Is there any difference if I add $100 to each payment or just make a lump sum payment of $200 each month, or would it be pretty much equal since they work out to $200 extra per month direct to to principal.
@@lawncarenuts870 I would assume it works out pretty much the same. Adding biweekly may be very slightly better.
I've never heard of "renewing" a mortgage before. Sure, refinance, but not renew. What exactly is renewing?
There are a few good article online around this. If you google mortgage renewal vs refinance you will find a few.
@@ParallelWealth Looks to be a Canadian thing... Guess that's why I hadn't heard of it. Learn something new everyday... Thanks
In Vancouver we wish our mortgage was $500,000
"Unless you live in Calgary, your house has gone up in value."
Me with multiple properties :(
You can add Cold Lake to that list - think mine went down 🙄
Edmonton too:(
Why would you want to pay off mortgage earlier? doesn't the purchasing power of money half about every 10 years? so in 30 years those 50k you save on interest, but having less money to spend at that time doesn't make much sense... 50k / 2 / 2 / 2 = 6.25k... that $50k 30 years from now would be like $6250 in todays money... which is like why would you want to pay that off so fast losing your purchasing power now? It's like you paid all this extra, just to save 6.25k ouch... those $46 dollars per week extra is like $46 * 52 weeks * 30 years = $71760 extra you putting in over the 30 years (and if you finish early by 5 years, you still put in extra $59800 for 25 years...) to save what on interest? ouch! If you invested that money DCA you would probably do better lol. I mean just in 1 year if you have it in at just 5% not to mention stocks go up with inflation! ouch... It only makes sense if you want to pay it off a LOT faster, in like 5-10 years instead of 30, maybe then you can save a lot on interest.
This is not a generation that will live in the same home for 30 years. Good info though.
Your forget a very important way to pay off your mortgage fast is called mortgage recast.
What if they only allow me to put a lump sum of 10% per year?
Most allow 30%, but do what you can.
What about each month putting all our salaries into paying the capital of the morgage and using a morgage line of credit to pay expenses ? 🤔
The interest would be paied on “expenses” instead of “capital” amd that would lower the own amount on the mortgage
We do not want to have a mortgage free house when we die so that isn’t a factor
Could you msg me for planning?
www.parallelwealth.com/planning You can see our options and also book a call with us from there.
Do you have courses for United States
I’m not understanding how a 4% interest rate would translate to $355,933 in interest paid on a $500,000 mortgage. Wouldn’t that be like 71% interest? What am I missing here?
Over the term it adds up. Run a mortgage calculator online.
@@ParallelWealth oh right. I was picturing 4% of the initial 500k, forgetting that it’s an annual interest rate.