1. Buy a home you can easily afford – and, this is definitely much easier said than done in Toronto’s hot property market, but if you smart about what you can afford, you will be able to comfortably meet and exceed your financial obligations on your home. Instead of just trusting that your financial institution will only give you a loan for what you can afford, do the math yourself. Instead of calculating your mortgage affordability based on your gross income, calculate it on what you get after taxes, savings, utilities, communications, food, insurances and your car costs have been deducted. What’s left over is what you can really afford. And, even from that sum you will have to factor in property taxes and maintenance costs. As long as you stick within that figure, you will be fine.
2. Make extra payments. Yes, it seems so straight forward, but making extra payments from the very beginning of your home loan will attack the capital from the start. Reducing your capital will immediately reduce the amount of interest you have to pay back and will also reduce your loan amortization. If you can, make an extra mortgage payment every quarter or round-up the amount you pay.
3. Switch to a bi-weekly payment schedule. When you pay down your debt weekly or bi-weekly, you are effectively making one full extra month’s payment towards your loan. That will eat into your capital and reduce your amortization dramatically.
4. Rent out a room for extra income. If you don’t have the extra cash to put towards your mortgage every month, it might be worth converting an extra room into a space you can rent. The extra income could go entirely towards paying down your mortgage. However, this only works if you have the extra room to spare and if you are willing to share your space with a stranger.
5. Use your tax-refunds and bonuses wisely. Another source of income that could be put to good use is any tax refund you receive or bonuses you get. Instead of taking a big vacation or buying things that depreciate, use that extra money to make a lump sum payment towards your mortgage.
As long as you don’t incur additional consumer debt and if you are focused on paying down your mortgage and follow these simple steps, you can be debt-free quicker than you ever imagined.
