Blog Post

4 Ways to Reduce Your Mortgage Debt

Luisa Hough • Feb 09, 2015

Debt Repayment Top Financial Priority for Canadians in 2015

According to CIBC’s yearly poll on consumer financial priorities, paying down debt continues to be the top financial concern for Canadians.

22 per cent of those polled said debt repayment is their top financial priority for 2015, up from 16 per cent a year ago.

Most of the time when people hear the word “debt” they typically think of credit cards, student loans, vehicle financing, or a line of credit. Typically they aren’t that far off. In modern society “debt” has come to mean consumer debt, and being “out of debt” means that you don’t owe any money except maybe on your mortgage.

Well, even if all your credit cards and line of credits have a zero balance and you own your vehicle outright… but you have a mortgage, you still have debt.

So here are 4 ways you can reduce your mortgage debt.

1. Accelerate Your Payment Frequency

Making the change from monthly payments to accelerated bi-weekly payments is one of the easiest ways you can make a difference to the bottom line of your mortgage. Most people don’t even notice the difference.

A traditional mortgage splits the amount owing into 12 equal monthly payments. Accelerated biweekly is simply taking a regular monthly payment and dividing it in two, but instead of making 24 payments, you make 26. The extra two payments really accelerate the pay down of your mortgage.

2. Increase Your Mortgage Payment Amount

Unless you have a really bad “no-frills” mortgage, chances are you have the ability to increase your regular mortgage payment by 10-25%. This is a great option if you have some extra cash flow to spend in your budget.

By voluntarily increasing your mortgage payment, it’s kinda like signing up for a long term forced savings plan where equity builds in your house rather than your bank account. The extra money goes directly towards the principle repayment of your mortgage and is not a pre-payment of interest. This definitely works in your favour as it lowers the amount of interest you owe over the total time you have your mortgage.

3. Make a Lump Sum Payment

Again, unless you have a “no-frills” mortgage, you should be able to make bulk payments to your mortgage. Depending on your lender and your mortgage product, you should be able to put down anywhere from 10-25% of the original mortgage balance. Some lenders are particular about when you can make these payments, however if you haven’t taken advantage of a lump sum payment yet this year, you will be eligible.

Are you getting a nice tax return this spring? Maybe you should consider making a lump sum payment with it this year. Or take a warm holiday next winter, it’s totally up to you! However any lump sum payment will make a huge difference in how fast you will pay off your mortgage.

4. Mortgage Refinance

Now, if debt repayment is the top financial priority for Canadians in 2015, there is obviously a reason. A lot of people have consumer debt, plain and simple.

If you can’t seem to get a handle on your consumer debt, but you own a property with significant equity, you should consider renegotiating your current mortgage. You might be able to access some of the equity you have built up in your property to pay off your consumer debt. This will not only improve your cashflow, but it will lower your overall cost of borrowing.

From there you could take the money you would have otherwise been paying on your consumer debt and increase your mortgage payment and take advantage of your prepayment privileges. It’s a win win… pay off your consumer debt AND start a plan to pay down your mortgage debt faster.

Feel free to contact me anytime. Not only can I help you get a mortgage, I can help you with the plan to get rid of it.

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