We as Canadians take a lot of heat about the amount of debt we carry. Yes, our household debt levels are up dangerously high – almost as high as the U.S.’ before the crisis. And yes, we do continue to take on more debt. But while we might take on a lot, we also want to pay off that debt as soon as possible. This, according to the Canadian Association of Accredited Mortgage Professionals (CAAMP.)
The survey done by the group of mortgage brokers was completed in November and polled 5.8 million Canadian mortgage holders. Of that number, 36% had made a concentrated effort to repay their mortgage early and get out from under their debt load earlier in life. There were three main ways those surveyed used to pay off their mortgage faster – 16% increased their monthly payment amount; 17% made additional lump sum payments; and 5% made payments more often, such as switching from monthly payments to bi-weekly. And those who were really eager to pay off their mortgage? 6% of those polled said that they used two or more of these approaches in order to pay off their Toronto mortgages and Canadian mortgages early.
“It’s the most recent buyers,” says Jim Murphy, president and CEO of CAAMP, “those that purchased from 2006 to 2011 – who are making the most additional efforts to speed up the repayment of their mortgages. But he also warns, it’s important that Canadians know what their mortgage contract allows before they start making repayments that are too large. “Most mortgages will let you pay 20% of the principle on an annual basis without a penalty, which is great if you expect a windfall of cash that can be applied to the mortgage. However, he says, “Some of the newer mortgage packages offer a low interest rate, but also limit lump sum payments to 10% of the principle. Be careful of the mortgage features you choose, and make sure they offer the best features for your circumstances.”
Murphy also advises Canadians about when is the right time to make a large, additional payment on your mortgage debt – as early in the mortgage as possible. When you pay off additional debt on your mortgage at the beginning of the loan’s life, you’ll take a good chunk off the principle – and that principal can then no longer have interest (and interest payments) attached to it, because you’ve already paid it off. If however, you make an additional payment at the end of the loan, when the principle is going to be just about paid off anyway, you won’t save yourself nearly as much.
David Stafford, managing director of real estate secured lending at Scotiabank, says that it’s easier than ever for Canadians to pay off their mortgages early – and to get the right incentive to do so, which is often the biggest challenge. With online mortgage calculators, says Stafford, people find it easier than ever to go online, change the decimal places or a few of the numbers, and see just what a huge difference it would make if they made a little extra in payments here and there.
And when it comes to getting out of debt faster, especially huge debt like a mortgage, often seeing really is believing.
