When discussing mortgage payments, most people focus on the interest rate. But, it’s also important to understand how the principal balance owing on your home comes into play with your monthly mortgage payment.


The ‘principal’ is the amount of money you originally borrowed for your mortgage. Interest is the cost of borrowing the principal amount over time.


In the early stage of your mortgage, your lender will apply a greater portion of the payment towards the interest, with the remainder going towards the principal. But, over time, an increased portion will be applied towards the principal until it’s paid off in full. 


Ways to pay off your mortgage sooner

It’s important to have flexibility built into your mortgage so that you have the option to put down extra money in order to pay down the balance faster – also know as making pre-payments. Your mortgage agent can explain the specific pre-payment options available through each lender and help you decide what’s best for you. 


Determining your payment frequency has an impact on how quickly you reduce the principal, the amount of interest you pay and when your mortgage will be paid off. Choosing your payment frequency will depend on your other financial obligations as well as your comfort level. And while there are many advantages to committing to a more frequent payment, you should select the frequency best suited to your financial situation. 


When you increase, or accelerate, the payment frequency, you reduce the principal faster and, therefore, pay less interest. Your payment frequency is determined when your mortgage is first arranged but you may be able to change it at a later date, usually without having to pay a fee. If, for instance, you choose to pay on an accelerated bi-weekly schedule, you actually make 26 payments per year instead of the 24 that come along with paying your mortgage twice per month. This one move can end up saving you thousands in interest over the life of your mortgage.


Have questions about interest, principal or how to pay your mortgage off quicker? Answers are a call or email away!