Being mortgage-free is an appealing goal. If you have extra money from savings, a bonus, or an inheritance, putting it toward your home loan may help you get there sooner. The right decision depends on your mortgage contract and your overall finances.
What could you gain?
Extra principal payments reduce the balance on which interest is charged. They can shorten repayment and lower total interest costs. Once the mortgage is paid off, that regular payment can become available for other priorities.
The benefit varies with your rate, balance, and payment timing. Ask for a comparison using your actual mortgage rather than assuming an advertised example applies to you.
Check your prepayment privileges first
Your contract determines how much extra you can pay and when. Some mortgages allow lump sums or increases to regular payments within specified limits. Going beyond those limits, or paying out a closed mortgage before its term ends, may trigger a penalty.
Before transferring a large amount, ask your lender to confirm your remaining allowance and provide a written estimate of any payout penalty and fees.
Keep money available for emergencies
Consider how you would cover a repair, loss of income, or another unexpected expense after making a prepayment. Money paid into your mortgage is no longer available as cash; borrowing it back requires a separate lending arrangement and may not be possible when you need it.
Look at your other debts and goals
If you have higher-interest debt, compare the interest you could save by paying that down first. Also consider upcoming expenses, retirement saving, and any employer savings match. A financial adviser can help weigh these priorities alongside your mortgage.
Compare prepayment with investing carefully
A mortgage prepayment reduces borrowing costs. Investment returns are uncertain and can be affected by fees and taxes. Avoid comparing your mortgage rate with an optimistic investment return as though both outcomes were guaranteed. Your timeline, comfort with risk, and need for accessible savings all matter.
Choose an approach that fits your budget
You do not have to pay off the entire loan at once. Subject to your contract, you could:
- Make an occasional lump-sum payment within your allowance.
- Increase regular payments by an affordable amount.
- Ask about accelerated payment options and the extra annual amount involved.
- Review payment choices when your mortgage renews.
Confirm the rules with your lender before changing payments. A sustainable plan should leave enough room for everyday expenses.
Questions to ask before paying extra
- How much can I prepay without a penalty, and when does that allowance reset?
- What penalties or fees would apply to a full payout?
- How much interest would this payment save?
- Would another debt be a better first priority?
- Will I still have enough cash for emergencies and upcoming costs?
Let’s review your options
Paying your mortgage off early can be worthwhile, but it should support your broader financial plan. Cochrane Mortgage can help you understand your mortgage features and compare repayment options before you decide.
Call 403-907-2818 or email info@cochranemortgage.com for a free consultation.
Discuss your mortgageGeneral information only. Prepayment limits, penalties, and fees depend on your mortgage agreement. Ask your lender for details specific to your loan.
Further reading: Financial Consumer Agency of Canada — Paying off your mortgage faster and Mortgage prepayment penalties.
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