Smart Ways to Reduce Your Mortgage Faster

With interest rates still at historic low, a 25-year amortization can be whittled down, and thousands of dollars saved, by doing a basic mortgage checkup, according to the experts.

"At least once a year, get into the habit of taking a look at what the market is offering in terms of rates and discussing whether it's worth your while to renegotiate your mortgage or increase your payments," says Martin Beaudry, a vice-president of lending at ING Direct. Any extra money you can apply -- especially early on in mortgage payments -- usually translates into significant savings over a 25-year period, he adds.

Spring is an ideal time for a mortgage checkup because it's the time you file your taxes, says Beaudry. If you are expecting a refund, applying that refund to your mortgage, rather than making a personal purchase, can save you significant money. For example, a $400 refund translates into at least $2,000 to $3000 in interest savings, says Beaudry.

While most people "migrate to rates," says Laura Parsons, area manager for specialized sales at BMO Financial Group, there may be drawbacks in going with the cheapest mortgage rate you can find.

She says most people don't even review their mortgage documentation before signing them. Yet from bank to bank, every product is different, and the prepayment options can differ considerably.

Going for the lowest interest rate may mean forfeiting those cost-cutting privileges. So, be sure to ask if and when you're allowed to make prepayments on your mortgage.

"When you think about increasing your payments, even $100 makes a huge difference over time," explains Parsons. "It's a window of opportunity with prime rates so low for people to prepay." As she says to clients, if you have three coffees a day, buy one fewer coffee and put that money toward your mortgage instead.

To add fuel to the burning of your mortgage, opt for bimonthly or, even better, weekly payments, and you can shave four to six years off your repayment schedule.

Paying an extra $3,000 once a year toward the principal on a $250,000 mortgage can result in interest savings of more than $40,000 on a mortgage with a 25-year amortization and a fixed rate of 4.19 per cent.

Shopping around for a mortgage with the option of making lump-sum prepayments on your anniversary every year and payment flexibility also offers a safety net should you experience reduced income or unexpected expenses.

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