Late last year, I experienced the thrill of a lifetime. In fact, my hands shook as I drove to the bank. I could hardly believe my wife Brenda and I were finally at the end of our five-year financial plan and I was about to make the last payment on my mortgage. As I walked out of the bank, I raised my hands in the air and yelled “Whoohoo!!!!” at the top of my lungs. Slaying the mortgage dragon felt amazing.
You see, six years ago, my wife and I moved into our custom-built dream home. I was 31 at the time, with a mortgage north of $320,000. The sheer thought of it took my breath away. Sitting on that pile of debt felt wrong, mainly because my dad had ingrained in me growing up that debt was bad and should be avoided as much as possible. Now, here I was, living with my wife in this beautiful house, and all I could think about was the number 30. We had 30 years of payments to look forward to on our loan. Worse, I realized that over those years, we’d end up paying $295,755 in interest to the bank—that’s nearly double our initial mortgage! I’d managed to get through post-secondary education with no loans, but here I was with this massive burden. It made my stomach churn. I wanted to get back to being debt-free as quickly as possible. So I grabbed a spreadsheet and starting working out the quickest possible way I could pay off the mortgage.
Here’s the good news: We didn’t need 30 years to pay off our mortgage. And while every mortgage is different, a lot of what I did can be replicated by just about anyone.
First, we cut down the amortization period. In mortgage lingo, this is simply the length of time it takes to repay the loan. For us, that meant switching to a 25-year amortized loan, which increased the amount of our regular payments, but not by much. This immediately saved us $61,000 in interest and we could have cut it to down to 20 years, but we wanted to leave a little wiggle room in our budget each month.
Next, we switched from monthly to biweekly payments. Now we were making 26 payments a year instead of 12—which works out to an extra month’s worth of payments each year. It might not seem like a big deal, but when tackling your debt, small amounts really add up.
We also took every opportunity to pay off our mortgage faster, including match-a-payment options. Under our lender’s mortgage rules, we were allowed to double up our mortgage payments. So while our original bi-weekly mortgage payment was $1,000, we were free to add another $1,000 for a total of $2,000 on every payment. For nearly three years we paid twice the amount on our mortgage every other week. It was a great way to cut our mortgage in half because the extra payments went directly toward reducing the initial mortgage loan, thereby reducing the amount of overall interest we were required to pay.
Some other options we took advantage of: Every year we increased our regular mortgage payments by 15%, which sped things up. And we made annual lump-sum payments. The amounts were based on the original mortgage total. We paid 15%, or $48,000 each year. That’s a lot of money. But if you’re able to find the funds, it can make a massive dent in your mortgage.
In the beginning, I’ll admit the task seemed daunting, but as time went by it got much easier. I really think the key to becoming mortgage-free is to just get started. Ultimately, I attribute our success to the fact that my wife and I made paying off our home our No. 1 priority. For those six years, we didn’t contribute to RRSPs, TFSAs or any other savings accounts. But we’ll have lots of time to catch up now.
As told to Julie Cazzin by Andrew Daniels, 37, of Winnipeg