Expert Mortgage Advice: How to Become Mortgage-Free (Faster!)


Editor’s note: This article was originally published on July 2, 2013 and was updated on July 30, 2015.

Many Canadians think the celebration is over when they get a mortgage. In fact, many Canadians don’t think they’ll be mortgage free until they’re 57, so the idea of paying off your mortgage can seem like it's a long way off. But with a few tips and strategies, you can get to that coveted “mortgage-free” status much sooner.

In fact, many Canadians don’t think they’ll be mortgage free until they’re 57.

Step 1: Make it a Game

The first and most important step to paying off your mortgage early is to put yourself in the mindset where it becomes a priority. The earlier you can pay off your mortgage, the earlier you can enjoy extra monthly funds to do whatever you want. The payoff is huge. Additionally, if you have a mortgage over a long period of time, it’s the bank that’s winning the game, not you. They’re getting all of your money over the long term with the interest payments. You can turn this around and become the winner by paying off your mortgage early. Albertans in particular have a sunny outlook on the matter—according to Scotiabank 67% of Albertans believe they can pay off their mortgage faster. Go team!

Step 2: Increase Your Income If Necessary

Scotiabank also reported that 42% of Albertans said that the reason they weren’t paying off their mortgage faster was that they didn’t have the funds to do so. The obvious answer to this problem is to make more money. Canadians are resourceful, and there’s many ways you can make money on the side. It could be as simple as getting a part-time job on evenings and weekends, or establishing a business that you can run in your off hours. If you’re staying at home with your children, starting an in-home daycare service is an easy source of extra funds. Many Canadians also have successful online ventures, such as eBay stores and businesses that sell niche products. Find your passion and run with it.

Step 3: Increase Payment Frequency

Once you have the funds, this is a tried and tested method of paying off your mortgage faster. Talk to your mortgage broker about increasing your payment frequency to twice a month rather than once a month, or even weekly if you can manage it. This also breaks up your payments into smaller pieces, instead of having a monthly lump sum that you’re hit with at the start of each month.

Step 4: Lump Sums are Great, But Not Necessary

For some homeowners, the vague plan is to pay down the mortgage with inheritances, bonuses or other large cash influxes. The key to actually doing it is to have the discipline to pay down your mortgage rather than taking off to your favourite vacation spot instead. Think of all the vacations you can take when you’re mortgage-free! Just make sure to check with your broker to make sure that you aren’t overpaying what you’re allowed to put down on the mortgage. Some plans allow for annual lump sums, but some do not. If your situation is such that you aren’t expecting large sums of cash to appear in your lap, don’t worry about it. However most lenders do allow a small regular increase to each payment.

Increasing your payment amount on a regular basis will get you much further ahead than an occasional balloon payment on your mortgage!

Step 5: Financial Strategy

If you’ve built up at least 20 percent worth of equity in your home, you can take advantage of something that many middle-class Canadians have been doing for years—a financial strategy called The Smith Manoeuvre. Basically what it allows you to do is use the equity in your home to make money on investments and tax credits in order to pay down your mortgage faster. The more you pay it down, the more you invest, and the faster your mortgage gets paid off. That’s an extremely simplistic explanation of the move; if you want more information see our blog post on it (linked above) or contact us.

Step 6: Get the Best Interest Rate You Can

The interest rate on your mortgage is the invisible hurdle you have to jump to pay off your mortgage. The higher it is, the longer it will take to pay off your mortgage. One of the best shortcuts to a paid-off mortgage is to find a better interest rate, and there’s no better place to do that than with a mortgage broker. We’ll find you the best rate that you qualify for using our large network of lenders.

Part of getting the best Interest rate you can is making sure that your credit is in great shape! Here is some information about what makes up a credit score; it's always a good idea to check your credit regularly to make sure everything is getting reported correctly.

Out of all of these steps, psyching yourself up to pay off your mortgage is the biggest hurdle for most people. It can seem like Mount Everest at first, but even the tallest mountain is climbed one step at a time. Once you start on the journey, you’re halfway there. Call us today to find out how you can start on your own personal strategy—whether it’s searching for a better interest rate or taking advantage of the Smith Manoeuvre—we'll be your financial sherpas guiding you up Mortgage Mountain.

MORE WAYS TO SAVE MONEY: check out, How Eating at Home can Save Big Bucks

President of First Foundation Residential Mortgages and First Foundation Insurance. Live in Edmonton but cheer for the Riders. I have lots of kids. Follow me on Twitter @gordmccallum

Learn more about Gordon McCallum