Table of contents

#1 Make extra payments

#2 Increase the amount of your payments

#3 Make a lump-sum payment

#4 Choose an open mortgage over a closed mortgage

#5 Learn more about prepayment penalties and prepayment privileges

#6 Refinance

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Paying off your mortgage early allows you to use the money you would be spending on your mortgage for the things that are important to you – like living well, traveling, investing, making renovations to your home, or helping your loved ones.

So, how do you make this goal a reality?

You have several creative financial choices to choose from when taking this type of initiative.

1. Make extra payments

One of the easiest ways to pay off your mortgage faster is to put additional money towards the mortgage. Check out your mortgage agreement and see if you can increase the frequency of payments. These types of options are called a prepayment privilege. Talk to your lender about prepayment options for your account.

2. Increase the amount of your payments

You may also consider increasing the payment amount monthly. Even if you increase what you pay by a small amount, you will still be getting ahead. However, be aware, if you choose to increase your mortgage payment each month, you might not be able to reduce it until the end of the term. The term of a mortgage agreement could range from a few months to five years or more.

3. Make a lump-sum payment

You can also opt for an early payoff by making a lump-sum payment on top of what you pay in mortgage payments monthly. Check your mortgage agreement to see if you can make a lump sum payment.

4. Choose an open mortgage over a closed mortgage

Paying off your mortgage is easier if you choose an open mortgage, versus a closed mortgage contract, which allows you to make payments without prepayment penalties.

Open mortgage agreements

While you can pay off your mortgage more easily if you agree to make payments through an open mortgage, the interest rate is usually higher than what it is on a closed mortgage with a similar term.

An open mortgage is a good mortgage to choose if you:

• Wish to pay off your mortgage early
• Plan to sell your home within 5 years
• Believe you can put additional money towards your loan from time to time

Closed mortgage

While a closed mortgage comes with a lower interest rate than an open mortgage, it also limits the amount of additional money you can put towards your mortgage annually. Again, if you choose to make an additional payment, you need to review the terms for prepayment. Not all closed mortgages allow borrowers to take advantage of a prepayment privilege.

A closed mortgage is a preferable option if:

• You plan to keep your mortgage in place for the length of the mortgage term
• The prepayment privilege allows you enough flexibility to make the payments you expect to make

5. Learn more about prepayment penalties and prepayment privileges

To pay off your mortgage early, you need to learn more about prepayment penalties and prepayment privileges.

A prepayment penalty

A prepayment penalty is a fee a lender charges when:

• You pay more than the allowed extra amount toward a mortgage
• You break the mortgage agreement
• You transfer the loan to another lender before the term's end
• You pay back the whole mortgage before the end of the term

A prepayment penalty may also be called a breakage cost or prepayment charge. Because a prepayment penalty can cost you thousands of dollars, you need to know when it applies and how it is calculated by the lender. if you are paying on an open mortgage, you can make a lump-sum payment or a prepayment without being assessed the charge.

A prepayment privilege

The prepayment privilege represents the money you can pay toward your mortgage, on top of your regular monthly payment, without being assessed a charge.

A prepayment privilege allows you to:

• Increase the regular payment you pay each month by a specific amount or percentage
• Make a lump-sum payment up to a specific percentage of the original mortgage amount

6. Refinance

If your monthly mortgage payment is becoming difficult to manage, and paying more each year is not going to work for you, you can also consider refinancing your mortgage with a new mortgage that better suits your needs.

You may opt for a mortgage with a longer amortization period, which reduces the amount of principal you’ll need to repay monthly.

Alternatively, you could refinance your existing mortgage with a reverse mortgage. This type of mortgage requires no payments at all, with interest simply added to the balance over time. Curious to learn more? You can find more information on reverse mortgages here.

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