How to save thousands of dollars on your home mortgage? Mortgage prepayments can save you thousands of dollars over the years! If you’re unsure ask your lender about your eligibility, you are allowed or not. A prepayment or lump sum is an amount that you pay extra to your regular payments to reduce your liability or pay off the debt balance. It’s like getting down your interest rates over your payment for the term by making your payments earlier. Increased mortgage payment vs lump sum is nearly the same and depends on your circumstances and or financial condition, whatever you consider, should be wise and beneficial. How can mortgage prepayments save you thousands on your mortgage? Following is an article especially selected from the official website of the Financial Consumer Agency of Canada for your consideration and better results.
Mortgage prepayments can save you thousands on your mortgage—but check first
Making prepayments on your mortgage could save you thousands of dollars over the years—as long as your mortgage lender allows them.
A mortgage prepayment is any amount you pay in addition to your regular payments. This can include increasing the amount of your regular mortgage payments or making a lump-sum payment to reduce or pay off your mortgage balance.
The sooner you can make prepayments, the less interest you will pay over the long term.
For example, consider a 25-year mortgage of $150,000 with a 5.45% interest rate. Assuming the interest rate remains the same over the life of the mortgage, the monthly payments would be about $911. Increasing the payments by $50 per month would pay off the mortgage two years sooner and save $14,000 in interest.
A one-time lump-sum payment of $15,000 in the second year of that same mortgage would result in paying off the mortgage more than four years earlier and saving over $33,000 in interest.
Check your mortgage agreement first, because not all mortgages have prepayment privileges. A closed mortgage may require you to pay a penalty or fee for any prepayment.
Federally regulated financial institutions, such as banks, must show your prepayment options in an information box at the beginning of your mortgage agreement. It will specify whether you can make prepayments, when you can do so, plus other related terms and conditions. Read your mortgage agreement carefully, and before signing ask the lender to explain anything that you don’t understand.
When shopping for a mortgage, ask the following questions:
- How much can I prepay without penalty or fee?
- Is there a minimum amount for a prepayment?
- When can I make prepayments?
- Are there any conditions or limitations?
- If there are fees or penalties, how much are they, and how are they calculated?
The Financial Consumer Agency of Canada has more information on this topic at itpaystoknow.gc.ca.
Source: Financial Consumer Agency of Canada (FCAC)
Date modified: 2015-06-25