What are Pre-payment privileges? Pre-payment privileges are simply the right to pre-pay a specified amount of the principal balance of your mortgage without incurring any penalties.
The pre-payment amount allowed with most lenders will vary from 10% to 25% of the total mortgage amount annually.
In addition, some lenders will allow you to increase your mortgage payment amounts. This may or may not contribute to your annual pre-payment allowance.
Let’s look at these options in a little more detail:
Most lending institutions will allow you to increase the amount of your mortgage payment. Some allow an increase only once per year, others only once per term, and some as often as you wish. The amount of this increase varies from lender to lender but is typically 10% to 25% of your current monthly payment.
For example: If your present mortgage payment is $1,000 per month you may be able to increase it to $1,200 per month ($1,000 X 20% = $1,200). The extra payment amount reduces a greater amount of your mortgage principal and therefore pays your mortgage off faster.
We would be happy to discuss the current policies of the different lending institutions with you. Feel free to give us a call.
Most lending institutions will allow you to make additional payments. This can mean a one-time lump sum
Most lending institutions will allow you to make large lump-sum payments against your mortgage principal. These amounts are principal only and reduce the balance owing rapidly.
The amounts vary by institution; some are up to 25% of the original mortgage amount. So, if you borrowed $120,000 originally, they will allow you to pay up to $30,000 in a lump-sum payment. This is usually allowed only once per year.
Each institution has different rules on the amount and frequency in which you can pay down your mortgage. Some lenders combine the totals from ‘additional mortgage payments’ with ‘lump-sum payments’. We would be happy to discuss the current policies of the different institutions with you.
Depending on your current financial status and the going interest rates, you may wish to lower your amortization. This typically works best if interest rates are the same or less than what you were previously paying, or if your financial status is a little bit better than when you first signed the original term.
For example, imagine you signed a
All the amortization period really does is determine your monthly payments. The bigger you choose to make your payment amount, effectively the smaller the length of time (amortization) it will take to pay off your total debt.
Renewal time is always the best time to consider adjusting your term and amortization. Your mortgage specialist will analyze your particular situation and make