Making lump-sum mortgage payments can significantly accelerate your journey to being debt-free, according to financial experts. With rising interest rates and unpredictable stock markets, the strategy of investing extra cash is becoming less appealing compared to paying down debt.

Patty Hopper, a mobile mortgage specialist at Vancity in North Vancouver, B.C., emphasizes the power of lump-sum payments. "Making lump sum payments on your mortgage is a pretty powerful strategy to save on your interest and become mortgage free a lot sooner," she said. By reducing the outstanding balance with these payments, homeowners can save money in the long run by eliminating interest on that amount.

However, many individuals may not have the extra cash flow to make these payments. Hopper suggests that bonuses from work or tax refunds can be excellent opportunities to make a lump-sum payment once a year. "Any little bit is going to save you interest," she added.

The landscape has changed since mortgage rates were below two percent. Now, with higher rates and volatile markets, the argument for investing extra cash instead of paying down debt is less convincing. Mengdie Hong, a senior financial planner at RBC in Ottawa, advises homeowners to compare their mortgage rates with expected returns on investments. "In simple words, if your mortgage rate is higher than what you expect from your investment, it may be best to allocate this excess cash to the mortgage," Hong explained. Conversely, if the expected return on investments is significantly higher, investing may be the better option.

Lump-sum payments can also help manage future payment increases when renewing a mortgage. A lower outstanding balance means less debt to carry forward. Additionally, if a homeowner sells their property before fully repaying the loan, they will have more cash available due to the reduced amount owed. "You’ve got more cash on hand to make your next purchase or to move forward in the next leg of your journey," Hopper noted.

It's important to recognize that there are restrictions on the size and frequency of lump-sum payments, which vary by lender. Homeowners should review their loan documents to understand these limitations. Both Hong and Hopper stress that extra payments should not be made in isolation. They should be part of a comprehensive financial plan that considers emergency funds, retirement savings, and other debts.

Hong cautions that if homeowners have higher-interest debts, such as credit card balances, they may want to prioritize those payments first. "So before you apply this lump sum, you may want to review all the debts that you have," she advised. While paying down a mortgage can be gratifying, it is essential to maintain flexibility in financial planning. "We always want to have flexibility and options in our financial plan," Hong concluded.