How Much Difference Will Extra Payments Make Towards My Mortgage?

Diane Gogar • July 31, 2019

Have you ever wondered how much difference extra payments actually make in paying down your mortgage? Let's take a look and maybe do a little math.

The first (and largest) factor to look at is the amortization, which is the remainder of your mortgage’s life. A majority of mortgages today start with 25-year amortizations. If you have made only regular payments for 5 years on a 25-year mortgage, your remaining amortization will be 20 years. Pretty simple, right?

Someone making an extra payment on a mortgage with 20 years left will save WAY more interest than someone making the same payment on a mortgage with 5 years left. The more years remaining on a mortgage, the more impact your extra payment will make.

The second factor to keep in mind is the mortgage interest rate. Your interest rate will change many times over the life of your mortgage, divided up by mortgage terms. If you agree to a 5-year term, you will only have that interest rate for 5 years, and then it will be time to renew at a different interest rate. At the time of this writing, mortgage rates are exceptionally low (even after some recent increases in 2018), and based on the last rate decision from the Bank of Canada on April 24/2019, they do not appear to be increasing anytime in 2019.

So what does that mean for you? Well, it depends if you are renewing this year, or 3 years from now. If you are renewing this year, you may want to consider your investment options for a lump sum amount, as opposed to paying down your mortgage. Paying down your mortgage makes the most sense when your amortization is high, and interest rates are also high (or going higher). If you’re renewing in three years time, then you may still want to consider paying down your mortgage, especially if you think mortgage rates will be higher at your renewal. The more you can pay when your mortgage is below 4%, the better payoff it will be if rates increase above 5%.

This is all conjecture and guesswork, especially when deciding between paying down your mortgage or investing more. However, mortgage rates have been abnormally low for a while now, and for whatever reason, the government of Canada selected a benchmark rate above 5% to qualify for a mortgage. Where interest rates go is anyone’s best guess, but it’s nice to be ahead of the game on your mortgage than trying to play catch-up with higher interest rates.

So let’s talk dollar amounts. For all of my examples, I’m going to use a $250,000 mortgage at 3.49% with 20 years remaining - that works out to a payment of $1445.40. If you switch to an accelerated bi-weekly, you’ll pay $722.70 every two weeks (half of the monthly amount), but you’ll save over $12,000 over the next 20 years because you will be making a couple of extra payments per year. Those payments really add up.

With the same mortgage (back on the regular monthly payment), let’s say you have $10,000 floating around your accounts, and you decide to use that money to pay down your mortgage. You’ll have saved around $9,500 in interest thanks to that payment. If you did BOTH the accelerated bi-weekly schedule and the $10,000 payment, it combines to over $20,000 of saved interest.

One more calculation with this mortgage - let’s say that, instead of any of the options described here, you decide to increase the monthly payment from $1445.40 to $1600 even. In just the 5 years time, you would save almost $6000 in interest over the life of the entire mortgage. But if mortgage rates stayed the same for the entire life of the mortgage, and you kept up the additional payment of only $154.60/month, you would pay off the mortgage 3.5 years sooner, AND save almost $15,000 in interest.

In summary, paying down your mortgage can feel good, both in your mind and in your wallet. It makes the most sense to pay down your mortgage when both amortization and interest rates are high. It can sometimes be difficult choosing between investing more and paying down your mortgage, but you can think of your mortgage interest rate as a guaranteed return, which is typically better than your GIC options.

If you'd like to discuss your financial situation and and want to review your mortgage to make sure you have the best mortgage available, contact me anytime!

DIANE GOGAR
MORTGAGE PROFESSIONAL
CONTACT ME

Get Protection From A Pre-Approval

By Diane Gogar • March 5, 2025
There is no doubt about it, buying a home can be an emotional experience. Especially in a competitive housing market where you feel compelled to bid over the asking price to have a shot at getting into the market. Buying a home is a game of balancing needs and wants while being honest with yourself about those very needs and wants. It’s hard to get it right, figuring out what’s negotiable and what isn’t, what you can live with and what you can’t live without. Finding that balance between what makes sense in your head and what feels right in your heart is challenging. And the further you are in the process, the more desperate you may feel. One of the biggest mistakes you can make when shopping for a property is to fall in love with something you can’t afford. Doing this almost certainly guarantees that nothing else will compare, and you will inevitably find yourself “settling” for something that is actually quite nice. Something that would have been perfect had you not already fallen in love with something out of your price range. So before you ever look at a property, you should know exactly what you can qualify for so that you can shop within a set price range and you won’t be disappointed. Protect yourself with a mortgage pre-approval. A pre-approval does a few things It will outline your buying power. You will be able to shop with confidence, knowing exactly how much you can spend. It will uncover any issues that might arise in qualifying for a mortgage, for example, mistakes on your credit bureau. It will outline the necessary supporting documentation required to get a mortgage so you can be prepared. It will secure a rate for 30 to 120 days, depending on your mortgage product. It will save your heart from the pain of falling in love with something you can’t afford. Obviously, there is nothing wrong with looking at all types of property and getting a good handle on the market; however, a pre-approval will protect you from believing you can qualify for more than you can actually afford. Get a pre-approval before you start shopping; your heart will thank you. If you’d like to walk through your financial situation and get pre-approved for a mortgage, let’s talk. It would be a pleasure to work with you!

Is It the Right Time to Refinance? 5 Signs You Should Consider It

By Diane Gogar • February 27, 2025
Refinancing your mortgage can be a smart financial move, but how do you know if it’s the right time? Whether you’re looking to lower your monthly payments, access home equity, or consolidate debt, refinancing can offer valuable benefits. Here are five key signs that it might be the right time to refinance your mortgage in Canada. 1. Interest Rates Have Dropped One of the most common reasons Canadians refinance is to secure a lower interest rate. Even a small decrease in your mortgage rate can lead to significant savings over time. If rates have dropped since you took out your mortgage, refinancing could help you reduce your monthly payments and save thousands in interest. ✅ Tip: Check with your mortgage broker to compare your current rate with today’s market rates. 2. Your Financial Situation Has Improved If your credit score has increased or your income has stabilized since you first got your mortgage, you might qualify for better loan terms. Lenders offer lower rates and better conditions to borrowers with strong financial profiles. ✅ Tip: If you’ve paid off debts, improved your credit score, or increased your savings, refinancing could work in your favour. 3. You Want to Consolidate High-Interest Debt Carrying high-interest debt from credit cards, personal loans, or lines of credit? Refinancing can help consolidate those debts into your mortgage at a much lower interest rate. This can make monthly payments more manageable and reduce the overall cost of borrowing. ✅ Tip: Make sure the savings from refinancing outweigh any prepayment penalties or fees. 4. You Need to Free Up Cash for a Major Expense Many Canadians refinance to access their home’s equity for renovations, education costs, or major life expenses. With home values rising in many areas, a refinance could help you tap into that value while still keeping manageable payments. ✅ Tip: Consider a home equity line of credit (HELOC) if you need flexible access to funds. 5. Your Mortgage Term is Ending, and You Want Better Terms If your mortgage is up for renewal, it’s the perfect time to explore refinancing options. Instead of simply accepting your lender’s renewal offer, compare rates and terms to see if you can get a better deal elsewhere. ✅ Tip: A mortgage broker can help you shop around and negotiate better terms on your behalf. Is Refinancing Right for You? Refinancing isn’t always the best move—there can be penalties for breaking your current mortgage, and not all savings are worth the switch. However, if you relate to any of the five signs above, it’s worth discussing your options with a mortgage professional. Thinking about refinancing? Let’s chat and find the best option for you!
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