Understanding and Paying Off Your Mortgage Early

Introduction

Presenter: Gabrielle, Chartered Professional Accountant and founder of a tax-specialized accounting firm.
Objective: Explain mortgage interest, how it affects your payments, and strategies to pay off your mortgage early for financial freedom.

Mortgages come with a monthly payment schedule, usually in a 5-year period before renewal.
Monthly payments consist of two parts:
- Principal: The amount borrowed to purchase the home.
- Interest: The cost of borrowing the principal.
Interest rates can vary based on economic conditions, prime rates, and bank fees.
Higher interest rates lead to higher total payments over the mortgage's life.
Amortization Period: The total duration to repay the mortgage (25 years in Canada, 30 years in the US).
- A longer period results in lower monthly payments but higher total interest.

Borrowing $400,000 at a 5% interest rate over 30 years would result in $773,000 total payments.
- $400,000 towards principal.
- $373,000 towards interest.
- Equivalent to buying another home.

Pay a significant one-time amount towards your principal.
Example: A $20,000 payment reduces the mortgage to $380,000, allowing for faster principal repayment.
Result: Pay off in 26.8 years, saving $62,500 in interest.
Limitations: Banks may cap prepayments (e.g., 20% of the mortgage annually).

Make payments every two weeks, effectively adding an extra monthly payment each year.
Result: Pay off in 25.2 years, saving $68,500 in interest.

Mixing lump sum, extra monthly, and bi-weekly payments can maximize savings and reduce mortgage duration.

All strategies focus on reducing the principal faster to decrease interest payments.
Consider individual financial situations to choose the best strategy.
Call to Action: Consider using the provided template for personalized calculations and explore further financial advice content.