Here are four that can put a surprising amount of extra money in your pocket over time:
Strategy 1: Increase the amount of your payments
Throwing just $100 a month extra at your mortgage can result in formidable savings. Let's assume a $250,000 mortgage at 3.49%, amortized over 25 years. Monthly payments would be $1,247.
Boost that payment to $1,348, and something magical happens. You'd save $15,400 in interest charges over the life of the mortgage (assuming a constant interest rate of 3.49%) and you'd pay it off three years sooner.
Strategy 2: When you renew, keep your monthly payments the same
Let's assume you took out a $250,000, five-year fixed mortgage in 2009 at an interest rate of 5%. Your monthly payments have been $1,454. Now, it's time to renew and your bank is offering you 2.99% for the next five years. As a result, your monthly payments would drop to $1,224.
Great! But what if you keep on with the $1,454 payments you're used to? That extra $230 a month over the remaining life of the mortgage will allow you to pay off your mortgage four years sooner and you'll save $15,700 in interest. Not bad for just maintaining the status quo.
Strategy 3: Choose an accelerated payment option
This is almost painless. Let's use the example of the $250,000 mortgage described in strategy one. Your monthly mortgage payment is $1,247. Divide that by two, and you get $623.50. Now arrange to pay this amount every two weeks. Because a pay-every-two-weeks strategy results in 26 payments of a half-month's mortgage payment, you end up paying the equivalent of 13 monthly payments a year – or an extra monthly payment every year.
This is what's known as an accelerated bi-weekly payment. Don't just opt for bi-weekly – you want the method that forces you to pay the equivalent of an extra monthly payment each year.
This strategy alone would save the borrower more than $16,300 in interest over the 25-year life of the mortgage. And that 25-year mortgage would also be paid off in a little more than 22 years.
Strategy 4: Make a lump-sum payment
Most closed mortgages (but not all) allow borrowers to pay off up to 10%, 15% or 20% of the original principal in each calendar year without penalty.
Thanks for nothing, you say. "I don't have $50,000 to throw at my mortgage." The good news is that you don't need to pay down the entire 20 per cent. Throwing even a few hundred dollars at it here and there can make a big difference.
One popular suggestion is to put your tax refund to work this way. Assuming we have the $250,000 mortgage described in strategy one, and applying a $1,600 annual payment that the Canada Revenue Agency says is the size of the average refund, that manoeuvre alone would see that mortgage paid off three and a half years early and the mortgage holder would save $20,000 in interest.
Every little bit helps and saves you interest.