Prepaying Your Mortgage

What Does Prepaying Your Mortgage Mean?

Prepaying your mortgage, simply put means paying all or part of your mortgage amount before it becomes due. This can be done in different ways but the end results are the same; paying less on your overall mortgage amount. This allows you to pay less interest to your mortgage lender and saves you money in the long run. However, before you prepay your mortgage be sure to check your mortgage lender’s terms as it relates to mortgage prepayment.

How Does Mortgage Prepayment Work?

There are a number of ways you can prepay your mortgage:

  1. Pay a little extra on your loan each month. This over time can save you tens of thousands of dollars and reduce your loan by years.
  2. Make bi-weekly payments on your mortgage. By doing this you will be paying for 13 months in one year instead of 12. This will also reduce your overall mortgage figure but at a slower rate as opposed to paying more each month (depending on how much more you pay).
  3. Make extra payments. Do this by putting any extra money that comes your way into your mortgage but you have to be disciplined with this to really reap the benefits. Whether it comes from a work bonus, tax returns or an inheritance as long as you can afford to make the sacrifice put it on your mortgage.

Are There Restrictions on Prepaying Your Mortgage?

Some mortgages may have prepayment restrictions and others might not. To know the terms of your mortgage be sure to read it thoroughly and understand it. Some prepayment mortgage terms have penalties that are charged if you’re going to prepay. You can normally find these terms under the headings ‘prepayment penalty disclosure’ or ‘prepayment disclosure’.

Where prepayment penalties are concerned some mortgage lenders are stricter than others and will require penalty based on a sliding scale based on how long you’ve had your mortgage. They do this to discourage pre-payment as if you pay off your mortgage before the forecasted time then you’re taking away from their profits. Be sure to know where you stand before making your prepayments.

Before signing your mortgage agreement it’s safer to check with your financial institution on where they stand as it relates to mortgage prepayments.

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