Ready to get out of debt with a lump-sum mortgage payment? Today we’re going to talk about prepayment privileges.
There are two types of prepayment privileges. The first type is lump-sum payments on any payment date, and the second prepayment is increasing your mortgage payment to be set at a higher amount.
Make a Lump-Sum Payment
Lump-sum mortgage payments are any payment up and above your regular mortgage payment. This extra lump sum payment will go directly towards the principle and pays off your mortgage faster. I had a client use her tax refund to pay down her mortgage each year, and she did $3000 a year and that shaved off a number of years off her mortgage.
The key is to understand the difference between these lump-sum payments among the different lenders. There are three main differences.
The first difference is what is the percentage on the lump sum payment allowed. Some lenders will give you a 5% lump sum per year to 10%, 15%, 20% or 100%. This percentage is based on your original mortgage amount. So say, for example, you had $200,000 mortgage. Your lump sum payment at 5% would be $10,000 a year, or if your lump-sum payment was 20%, you could put down an extra $40k every year. That money will go directly towards the principal and pay off your mortgage faster.
How Often Are You Allowed to Make Lump-Sum Mortgage Payments?
The second difference is how many times will the Lender allow you to make these lump-sum payments. There are some lenders that will enable you to do it one time a year or three times a year and some lenders will allow you to do it up to 52 times a year. I love the lenders that give us the most flexibility.
Things to look out for are one time a year lenders. These lenders are among the big five big banks, and if you miss out on that one day because it landed on a Sunday or you were sick, or you were busy, or it was a holiday then you have to wait an entire year before you can take advantage of your prepayment again.
How Easy is it for You to Make Lump-Sum Mortgage Payments?
The third difference is how comfortable do the lenders make it for you to pre-pay your mortgage. For example, some lenders want you to come into the branch, set up an appointment and give them a certified check. Other lenders want you to get a certified check and mail it into the Lender. Some vendors make it super easy, and you do everything online or via email. Make sure you work with a lender that works with your lifestyle and makes it super easy to pay down your mortgage.
If you have any questions about your prepayment privileges, send me a message.