The Basics of Pre-payment Privileges

The prepayment privileges are included in most mortgages. They allow you to pay off your mortgage faster and reduce your interest costs. Each lender has their own prepayment privileges, some have up to 15%, 20% + 20%, double up, lump sum, etc. Let us review that 20 + 20 privilege. It allows an annual mortgage payment increase of up to 20% of the current payment plus another a yearly lump sum payment of up to 20% of the original principal.

Let us take an example of a $400,000 mortgage amortized for 25 years at 3.50%.

If you pay a $4,000 lump sum each year on your principal and you will pay off your mortgage in 20 years and save $42,452 in interest.

Alternatively you could increase your monthly payment by $400 and you will pay off your mortgage in 19 years and save $46,874 in interest. If you can do both you will save more and pay your mortgage off faster with less interest!

Usually my clients have found extra money from their tax refund, bonuses, return on their investments, or in the form of a raise. As your income increases you have the flexibility to increase your mortgage payment. Maintain your lifestyle and put the extra income towards your mortgage to reach financial freedom faster.

I provide expert advice, education and resources that homeowners need. Together we will build a plan to take advantage of not only prepayment privileges but all of the features of your mortgage that most miss out on.

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