What is Mortgage Prepayment Privilege?

We all seek to repay our debts in a short time, and when an opportunity presents itself in which you can clear our debts, we don’t think twice about, especially when we are in a position to. The same applies to homeowners.

Prepayment privilege is a situation where one can put more money towards repayment of the mortgage. However, if you go ahead and put more money than the maximum amount allowed, toward your mortgage, you may be liable to a prepayment penalty.

Go through your contract with the lender and discuss your options and terms of the contract, before you deposit any amount towards your mortgage. Depending on your lease agreement with your bank, you may be able to either:

• Make a lump sum payment

  If you choose this option, you will be able to pay a lump sum amount to reduce the outstanding balance of your mortgage. This amount is in addition to the regular payments that you make, according to the terms of your contract.

  The amount that you can pay is limited as indicated in the contract. You need to discuss your prepayment options with the lender. This lump sum payment can be paid:

  • At the end of the term of your mortgage contract
  • At specified times during the duration of the contract
  • Or before the length of the contract elapses

• Increase the amount of money that you pay regularly

  Another viable alternative is to raise the sum of money that you pay regularly. An increase even of a small amount can have a significant effect on reducing the time you need to repay the mortgage. The principles of prepayment apply here, too.

  You can only pay a limited amount as per the terms of your mortgage contract. If you increase the amount you pay, then, you will have to pay that amount, until the duration of the contract expires.

  There are other viable options borrowers could use to pay their mortgages faster. Such methods include sticking to the current monthly payments if you have the chance to renegotiate lower interest rates as you renew your contract. The other option is to choose an accelerated payment option.

  In this option, you can make weekly or biweekly payments in addition to the monthly payment that you make toward your mortgage.