Five Ways to Pay Off Your Mortgage Loan Faster

1. Increase your payment schedule. Biweekly mortgage payments have become increasingly popular as a way to pay off a mortgage more quickly.

2. Make lump sum payments. Depending on the terms of your mortgage agreement, you may be able to make lump-sum payments at specific times. For example, you could earmark your bonus check of $5,000 to pay off part of your mortgage.

3. Shorten the time frame of your loan. You could elect to refinance and change your 30-year mortgage to a 15-year mortgage. Bear in mind, though, that your monthly payments will be considerably higher.

4. Increase your payments. If your financial situation has improved and you are making more money, you may be able to make higher payments or balloon payments. Most loans will allow you to increase your payments in this manner with certain restrictions.

5. Refinance at a lower interest rate, but pay the same amount each month. If you maintain a 30-year mortgage, but the interest rate drops from 6.25 percent to 5.10 percent, the money you were paying in interest can now go toward the principal.

Save Money with Rapid Amortization

One way of saving thousands of dollars on your mortgage is by switching your payments from monthly to weekly or bi-weekly using a rapid amortization calculation.

Weekly or bi-weekly mortgage payments have been growing in favour with home owners across Canada and many institutions now offer these payment options. The fascination with more frequent payment options is that if they are done correctly you can take several years off your mortgage amortization and thus own your home free and clear years ahead of paying on a monthly basis.

Why is this? The trick is in how the weekly or bi-weekly payment is calculated. To achieve the rapid amortization you would take the monthly payment amount and divide it by four (weekly payment)or by two (bi-weekly payment). By doing this you end up reducing your mortgage principal each year by the amount of the monthly payment.

A simple illustration will help explain. If for example your monthly mortgage payment was $400.00 you would make a total yearly payment of $4,800.00 (400 X 12 months). By dividing the $400.00 by 4 you would have a weekly payment of $100.00 and thus pay a total yearly amount of $5,200.00 (100 x 52 weeks). Similarly by dividing the $400.00 by 2 you would have a bi-weekly payment of $200.00 and again pay a total yearly amount of $5,200.00 (200 x 26 bi-weekly pay periods). You can see from this example that both alternate payment methods result in an additional $400.00 ($5,200 - $4,800) being applied to your mortgage each year which comes directly off the principal. These accelerated payments can reduce a 25 year mortgage amortization down to 21 years. That's four years of mortgage payments saved.

Since you pay your mortgage with "after tax" dollars, think of what you would have to earn before taxes to see the true impact of the savings. Weekly and bi-weekly mortgage payments are thus another form of forced saving and these options are certainly attractive for those whose employment pay periods fall the same way. However, not all weekly mortgage payments are calculated using the rapid amortization process noted above so you may have to confirm this with your mortgage company.

The chart below compares the differences between a regular monthly mortgage payment, regular weekly or bi-weekly payment and rapid weekly or bi-weekly payment.