As anyone who’s purchased a home knows, those first few mortgage payments can be pretty depressing.  Even a payment of $1,500 may only get you about $100 in equity, with the rest going towards interest.  As you continue to make payments that ratio slowly changes, but if you aren’t expecting it, it can be pretty shocking.

The good news is that now is the perfect time to go for some big wins to see immediate progress in paying off your home.

The Biggest Bang For Your Buck

Most mortgages require monthly payments.  Some quick math says that there are 12 months in a year (ok, that doesn’t count as math), and if your mortgage payment is $1,000, that means you’re paying $12,000 a year towards your mortgage.

Using the accelerated payment option that almost every mortgage lender offers, you’ll pay half your payment amount every two weeks.  There are 26 two-week periods in a year, so making half-payments of $500 means you’re now paying $13,000 per year rather than $12,000.

This doesn’t seem like much, but it will actually knock years off your mortgage!  And that’s without doing anything other than modifying your payment terms – you won’t even notice the difference.

Lump Sum Payments Help

The beauty of a long time frame is that even small payments really add up down the road.  It’s important to understand just how this works so you’ll be motivated to take advantage of it.

You saw how big a difference an extra $1,000 a year can make, so why not throw some more money at your mortgage while you’re at it?

If you contribute to your RRSP, you can use the refund on your mortgage.  Holiday bonuses and other ‘extra’ money can all go towards your home. 

Paying a few more thousand a year will also reduce your amortization time by years. 

Stop Upgrading Your Lifestyle

If you receive a raise at work, consider ignoring it.  Rather than upgrading your car and going on fancier vacations, stick with the lifestyle you’re already used to and put all that money towards your mortgage.  This could easily be an extra few thousand dollars a year.

Increase Your Payment Amount

Most mortgage terms allow for some modifications of your payment amount.  Consider bumping up your amount, even temporarily.  Even $100 will add a couple thousand dollars a year.

Get Serious

Once you’ve done most or all of these, it’s time to ask yourself some serious questions.  Is paying off your home really a priority?  If it’s not, all of these decisions are just a sort of forced savings you’re imposing on yourself, which is fine, but probably won’t offer the motivation you need to really go for it.

If, on the other hand, you’re actually seeing how these small actions can equal big wins, you may be excited at the prospect of actually owning your home before you retire. 

If you make paying off your home a priority, now it’s time to get serious.  Can you forgo a vacation and use those thousands of dollars to pay down your home?  What about not replacing the second car that just died and putting those payments towards your home?

Only you can decide how serious you want to be, but it IS possible to own your home much, much sooner than most people assume.

Consider the above tips.  Start with a mortgage of $300,000 on a 25 year amortization period.  Using some steps above, you switch to:

– Bi-weekly payment

– $6,000 a year in found money (RRSP refund and holiday bonus)

– $2,000 per year extra from salary increase (this would in theory increase annually, but let’s ignore that for this example)

– $100 per payment increase

– $1,000 per year from your ‘get serious’ money, wherever you can find it.

That’s a total of $11,600 in extra payments per year.  Running it through our mortgage payment calculator, our amortization period is reduced to a shocking 12 years!  You’ve reduced your amortization time by more than half.

If you buy your home when you’re 30, you could be mortgage free by the time you’re 42. 

If the idea of finding an extra $11,000 a year seems ludicrous (and it might when you buy your first home), remember that you don’t have to commit every penny immediately.  It may take a few years to get up to speed, but keep these tips in mind, make some tough calls, and you’ll be able to own your home years earlier than most people.