Our Guide to Paying Your Mortgage off Early

With one in three Canadian mortgage holders feeling overwhelmed by their mortgage payments, we give you an insight into the advantages of paying off your mortgage ahead of time.

The most important question to address in this article is whether it’s worth your while to pay your mortgage off early. And by this, I’m addressing the prepayment penalties that may be a part of your mortgage’s conditions. If this figure is relatively high, say 3%, you could be costing yourself more in the long run. For instance, using a 3% penalty on a $280,000 mortgage, this would cost the Mortgage Holder a penalty of $8,400.

Here are several options that you can consider that will allow you to shorten the length of your mortgage;

  1. Bi-weekly payments – by paying bi-weekly rather than monthly you’ll effectively pay thirteen months of your mortgage per annum. This method has the potential to reduce a 25 year loan by five to seven years. You may be charged an enrollment fee, so contact your lender for the information around this option.
  2. Extra annual payment – In this method, you’re earmarking a certain amount of money every year to go towards an additional payment. There’s also the option of allocating any windfalls, such as bonus cheques and tax returns, towards your principal.
  3. Monthly additional payment – This option is suitable for those looking to put a little extra towards their mortgage per month. Contact your lender to see what conditions they have in place for paying back more than the regular monthly payment.
  4. Recast your mortgage – If you’ve recently come into an inheritance or other significant flux of income, you may want to consider this prospect. In this situation, the lending company will re-amortize the loan, keep the same rates, and reduce the monthly payments according to the reduced principal. There’s often a minimum lump sum required to recast your mortgage, for example, $10,000. By continuing to pay your current mortgage rates you are reducing the lifetime of your mortgage.
  5. Refinance with a shorter-term mortgage – The obvious benefit of switching from a thirty-year mortgage to a fifteen-year mortgage is the reduced payoff time. However, you’ll also save a significant amount in interest over the lifetime of the loan. Our mortgage calculator at Just Compare is on hand to understand amortization periods to understand the impact of different options. For refinancing, closing costs are a vital factor in whether or not this is a lucrative option for you in the long run.The difference in interest paid between a thirty and a fifteen-year mortgage is significant. For example, a principal of $250,000 will cost $456,017 on a thirty-year mortgage plan. By halving the time of the mortgage, the holder ends up paying $344,247, a saving of $111,770. We have a designated section for an independent scope into the mortgage refinance options available on the market.
  6. Pay off your principal – The extra payments that you put towards your mortgage may not actually result in knocking years off your mortgage. It’s important to specify that you want your allocated bonus payments to go towards your mortgage’s principal. Otherwise, your lender will use this money as a down payment for next month’s interest.



Retirement comes with the freedom of time, but the trends indicate that financial burdens are following Canadians into their golden years. 34% of retired Canadians over fifty-five carry debt. The average home buyer in Canada is currently in their mid to late thirties, with 35 year amortization periods available in the market, it’s not a stretch of the imagination to conceive that many will be committing to mortgage payments well into their retirement.

Funds for emergencies

Investing every last dollar into your mortgage can leave mortgage holders in a precarious position. The minimum amount appropriate for individuals has a lot of variables; one example is the regularity of their income stream. For example, an entrepreneur may need more savings than a teacher with a regular wage.

Financial freedom

This is a massive part of the motivation to pay back a mortgage early. If you want to go back into education or cut down time spent at work, you’re in a much better position to do so without mortgage payments.

There’s a reason why 63% of new low-ratio mortgages in Canada have an amortization period of over 25 years by value. People don’t want their lifestyle to dip because of mortgage payments. However, in the long run, it will costs these mortgage holders thousands of dollars in the form of interest that ends up with their lending providers and not in their own back pocket. Here are some of the benefits that come about from paying off your mortgage ahead of time. It’s usually a combination of factors like these that drive people to maximize their payments so as to own their house outright.

Leverage home equity into rental properties

Once you have paid off your mortgage in full, you own the house and so can use it as a leverage to take out a loan. It may be to buy another property and become a landlord or to set up a business. Having this asset creates financial possibilities.

Payback other debt

Once you manage to pay off your mortgage, you have more income to allocate elsewhere. One option is if you’re not already debt-free, is to work towards achieving this. Many Canadians have consumer and student loans to pay off.


There are various routes people invest in once rounding up their mortgage. For some, they decide to place 50% of their money into their child’s college fund and the other half into growing their nest egg.

Lifestyle inflation


Many people who work towards paying off their mortgages make sacrifices to keep the interest on their loan to a minimum. Whether it’s missing out on holidays, forgoing barista coffees in the morning or upmarket dining, you can start enjoying life more. Now that a significant outgoing in your monthly income is wiped from your spreadsheet, you can do with it as you please.

Paying off your mortgage quickly effectively puts money that you would otherwise be giving to a bank or other lending provider back into your pocket. If you’re looking for further independent advice on mortgage options, step into our mortgage comparison page or visit our blog

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Nilay Lad

Nilay Lad

Co-founder, Advisor & Guest Blogger

Nilay holds 14+ years of experience in developing and delivering strategies to grow and digitise banks through proposition development and improving customer experience.

This information is just our view and should be not be considered advice of any sorts.
From our experience and other professionals we partner and engage with, we work to find useful tips and information that would be important to share.
If you are someone that is looking for professional advice tailored to your circumstance, please contact a bank, financial advisor, or mortgage broker.