Making Extra Mortgage Payments Can Be Beneficial. But Should You Do It?

Should You Be Making Extra Mortgage Payments?

Should You Be Making Extra Mortgage Payments?

Perhaps you have had your home in Waterloo Region for a few years now. You’ve purchased all of the necessities that didn’t originally come with your home – a lawnmower, gardening tools and maybe you have updated your furniture and you’re pretty much settled in. Now you’re realizing you have a little extra money each month and it occurred to you that you could knock some time off your mortgage if you made an additional payment here and there. What if you put a portion of every pay aside just for this purpose – is it a good idea? You’re not the first person to come to me and ask for my advice on this. I’ve had this question asked of me while couples are putting in an offer on a home as well as past clients contacting me years after I’ve helped them buy a home in Kitchener-Waterloo to discuss this option. Initially, it seems like a rather sound idea: make an extra mortgage payment or two every year and potentially save tens of thousands of dollars in interest over the lifetime of your mortgage.

The Benefits of Making Extra Mortgage Payments

Just one extra mortgage payment a year has advantages. Yes, you can pay off your mortgage in a shorter period of time and take a few years off the term of your mortgage. Let’s take as an example, a $250,000 mortgage over a 30-year term with let’s say a fixed rate of 4%. If you made one additional payment every year, you would save approximately $27,724 over the lifetime of your mortgage. This one extra payment per year would also shorten the term of your mortgage by somewhere around four years and a bit.

The Downside of Making Extra Mortgage Payments

Yes, there is a downside to everything in life. Let’s look at the disadvantages of using income you have freed up, to contribute to your mortgage. If you use this extra cash to put toward your mortgage, you are tieing up funds that could be used to put aside for emergencies. Everybody has one at some point or another. One of the big ones is automobile repairs. You need your vehicle and if it were to break down, do you have money put aside for repairs? Financial investment specialists I have spoken to over the years have told me we should have 3-6 months of salary put aside for emergencies. Another smart use for extra money is putting it toward retirement through a specific type of retirement investment. If you have children, you’re going to want to contribute to an RESP for college or university tuition. I have a step-daughter who is enrolled at McMaster University in the fall and it sure hit home how expensive an education is when we sat down and made out an itemized budget. Thankfully, an RESP was started for her when she was a baby and at least her tuition and book costs are covered every semester.

If you have decided to make additional payments toward your mortgage, the first thing you will want to do is to contact your mortgage broker. Here are the questions you will want to ask:

  1. Do they allow extra payments?
  2. Do the extra payments go toward the principal and NOT the interest?

If extra payments are allowed and the amounts you will pay go toward your principal, now you need to decide which is the best approach to making these extra payments. You can pay a little extra every month, pay a lump sum at the end of the year (or at any specific time during the year), or you can make your mortgage payments bi-weekly which at the end of a year works out to one extra mortgage payment. In any case, speak to your mortgage broker about all of this and ask for the answers to your questions in writing so that you’re clear on what you can and cannot accomplish by making extra payments on your mortgage.

Find out how I’ve helped more than 2,000 families buy and sell homes in Kitchener-Waterloo by getting a copy of my free eBook here. Also for great real estate videos you won’t find anywhere else, subscribe to my YouTube channel. I love to share my expert knowledge so if you have any real estate questions feel free to call me at 310-SOLD or email me at