Mortgage Guide: Prepayment Privilege

It’s no secret we’d all like to pay off our mortgage and actually OWN our house. Think about all the things you went through to get there. First, you and your Windsor REALTOR® searched Windsor homes for sale and viewed all sorts of houses for sale in Windsor. Once you found the right home, you placed your offer and hoped. The news is, you got it, go finalize that mortgage pre-approval. You closed on the home and it’s all yours. Now it is time to make the payments. You’ve planned and budgeted and know that you are ready and able to make those monthly payments. However, you’ve saved more than you thought and decide you want to pay some more of your mortgage down. While there are the prepayment penalties we discussed HERE, you also have prepayment privileges and we’ll discuss those today.

First, what is prepayment privilege? Prepayment privilege is the amount you can pay towards your mortgage, in addition to your regular payments, without having to pay the aforementioned prepayment penalty.

Your prepayment privileges will typically allow you to do two different things. First they may allow you to increase your regular payments by a certain percentage as set out in your contract. They may also allow you to make lump-sum payments up to a certain amount or percentage of the original mortgage amount, at a specific time or times.

Prepayment privileges vary from lender to lender, they all have their own rules. It is important that you check the terms and conditions of your mortgage contract to find out important prepayment privilege info such as:

If your lender allows you to make prepayments
When your lender allows you to make prepayments
If there's a minimum or a maximum amount that you’re allowed to prepay
What fees or penalties apply
If there are other conditions

In general, most lenders limit the allowed prepayment amount per year. In addition, you most likely can’t carry a prepayment amount from one year to the next. This means you can’t add the amount you didn’t use in previous years to the current year. It’s the “use it or lose it” set-up.

Your mortgage contract will lay all this information out and it is critical to understand these prepayment privileges in order to avoid the prepayment penalties. Read up, save up, and help yourself pay off your mortgage faster with prepayment privileges. For more information on prepayment privileges be sure to check out this resource from the Financial Consumer Agency of Canada, HERE.

Here at Jump Realty our agents will give you honest advice on what course of action is best for you in their professional opinion and will always put taking care of your best interests first! With offices in Windsor, Tecumseh, Kingsville, and Chatham, no matter where you are, a Jump agent is ready to help. Please contact us for any housing needs and let us give you a better real estate experience!