The Fastest Way to Become Mortgage Free

A common goal for many homeowners is to become mortgage-free. After all, how good would it feel to eliminate that payment entirely? Prepayment privileges are a proven way to get there faster… by increasing your regular payments or adding lump sums, you can shave years off your amortization and save thousands in interest.However, there is a faster way to reach mortgage freedom.While aggressively using prepayment privileges is a popular strategy, it’s missing one powerful component that can turbo-charge your payoff and help you reach your goal even sooner.I’m not talking about accelerated bi-weekly payments. The missing piece is leveraging 100% of your residual income… the money that normally sits in your chequing account between paydays, so it’s reducing interest every single day.How do you leverage 100% of your residual income?It comes down to how your mortgage is set up. You’ll need a specific mortgage/HELOC structure that lets you use a Home Equity Line of Credit as your primary chequing account. Most standard HELOCs don’t work this way, so we’d set you up with one that does. You deposit all paycheques into this account and pay all bills from it. Because interest is calculated daily, every dollar of income immediately pushes down your interest-bearing balance, which pays the mortgage faster than prepayments alone.Here’s a simple example. Suppose you’re paid $10,000 on the 15th of the month and a $5,000 credit card bill is due on the 30th. You deposit the full $10,000 into the HELOC on the 15th, then pay the card from that account on the 30th. For those roughly two weeks, the entire $10,000 sits against your balance, so you’re not paying interest on it during that period. Extend that effect across all of your bills and pay cycles, and you’re putting every penny of your residual income to work instead of letting it idle in a regular bank account. That’s the “magic” behind the strategy.However, there are a few drawbacks: 1. The rate on the HELOC 2. There is generally a small monthly fee 3. You must have the discipline to use it as intended.But if you have the discipline to use the account as your primary chequing account as designed, then the rate and the fee shouldn’t be an issue given the amount you can expect to save in interest over the life of the mortgage.Success with this approach requires commitment. If you’re not prepared to use the account exactly as intended, the traditional prepayment route may be the better option. But if you are disciplined and consistent, this structure can put you well ahead, even with the higher rate… because the real goal isn’t the lowest rate; it’s to pay the least amount of interest over the life of your mortgage. Final ThoughtsFor homeowners with the discipline and commitment to run their entire cash flow through the account, this can be a powerful way to become mortgage-free faster and reduce total interest over the life of the loan. Results will vary based on your specific situation, particularly with how much residual income you have working for you each month.At PMT Mortgage, we can run some scenarios for you to see if this strategy is something that can work for you. Or we may recommend an alternative that is better suited to you specifically. Everyone is a bit different, so if another approach would serve you better, then that’s what we’ll suggest for you, tailoring the plan to help you reach your financial goals as efficiently as possible.