Prepayment privileges enable you to make extra payments directly to pay off your principal. Prepayment options come in many forms and have different limitations based on your lender, but overall if you choose to exercise them, they will save you time and money so you can become mortgage-free faster.
There are several ways you can take advantage of prepayments, including:
Lump-sum payments – This option will come either in the form of one single lump sum up to 10%, 15%, or 20% either once in a year or once a year on the anniversary date of the mortgage; or very liberally you can make multiple lump sum payments throughout the year without exceeding the allowable amount.
Double Up Payments – This option lets you automate the lump sum payments to double up and match your regularly scheduled payments. The savings will be exponential if you’re already on an accelerated payment plan.
Increase regular payments – If you have any prepayment privileges with your mortgage, you will have a corresponding option for lump sum payments to increase your regular payments by the same percentage on the anniversary date.
Payment frequency – This option lets you accelerate your weekly or biweekly payment. This means that the semi-monthly payment amount is applied 24 times a year and 26 times a year for biweekly accelerated payments. In contrast, weekly accelerated payments are half the semi-monthly applied 52 times yearly. Although technically not considered a prepayment privilege, accelerated payments can shave off a couple of years over the life of the mortgage.
Depending on the lender and the mortgage restrictions, not all prepayment privileges will be standard. Most lenders will have a full-featured mortgage that gives you all privileges and a restricted or limited-feature mortgage that gives you none. Some lenders will price a mortgage interest rate based on the number of features it provides, while others will use an a la carte approach in pricing each file individually.
nesto has some of the most simplified features available. We give you all options on our full-feature mortgages, including making a minimum lump sum for as little as $100 with any of your regularly scheduled payments.
Albeit our limited-feature mortgages, we do not give any prepayment privileges. The pricing is the same for all clients who qualify and get either of these mortgages. We prefer to have clients discuss their short- and long-term goals with our mortgage experts to ensure that their solution suits their unique needs, as not all mortgage solutions are suitable for everyone.