Should I make extra mortgage payments?
Usually yes, and earliest is best: in the first years almost every extra dollar goes to principal, so a prepayment then removes a large multiple of itself in future interest. Pay off higher-rate debt and build an emergency fund first, and stay inside your annual privilege limits.
Two mechanisms, both worth using. A lump sum prepayment, usually allowed up to a percentage of the original principal each year. And a payment increase, usually up to a percentage of the regular payment, which compounds because it applies every period.
Switching from monthly to accelerated biweekly is the version nobody notices: it makes the equivalent of one extra monthly payment a year and can remove years from the amortization at no felt cost.
When to do something else instead: if you carry consumer debt at a higher rate, pay that first. If you have no emergency fund, build that first, because a paid-down mortgage is not liquid when your furnace fails. And if your mortgage rate is below what you can reliably earn in a registered account, investing may win on expected value, though the mortgage return is certain and the investment return is not.
Stay inside your annual privileges. Exceeding them triggers a prepayment charge and defeats the point.
What it depends on
- your mortgage rate against your after-tax alternative return
- whether you have higher-rate debt or no emergency fund
- your lender's annual prepayment limits
Answer it with your own numbers
You will need: balance, rate, amortization, prepayment amount.
See what a prepayment does to your interestNext questions
When should I start shopping my mortgage renewal?
Four to six months before maturity. Treat the offer your lender mails you as an opening position rather than a quote you have to take, and get a competing offer in writing before you answer it.
Canada-wide
Is putting twenty percent down always better?
No. Twenty percent avoids the insurance premium and its sales tax, but insured mortgages are often priced below uninsured ones, and draining your reserve to reach twenty percent is a trade you should price rather than assume.
Canada-wide