As we always say – the terms and conditions of each mortgage are more important than the rate itself, as these can be the difference between saving thousands of dollars or not.
The pre-payment options of a Mortgage product you select is one of the most important features people need to pay attention to. This is yet another reason working with a Broker is key as an Unbiased broker will help you navigate all the options from over 30+ lenders.
Lump sum payments:
Pre payments vary from lender to lender in many ways.
The pre-payment options are the options to pre-pay the mortgage principal above and beyond your regular payments. These are payments made directly towards the principal.
For example: Your term can have anywhere from 5% lump sum payments to 20% lump sum payments per year
For example: $500,000 original mortgage amount = $100,000 per year you can pre pay the balance outstanding during your term.
One big difference here is how and when you can make this prepayment (lump sum)….
For example: RBC only allows clients to do one lump sum payment per year (only one, on the anniversary)….this is a very crucial issue as you may want to make a pre payment early in the year to lower the total interest paid throughout the year
Or you may want to make a prepayment lump sum at anytime throughout the year if you are breaking the mortgage….making a pre payment to the outstanding principal prior to breaking the term can save you thousands of dollars (but a restriction to when you can make the prepayment is crucial) and a very important factor to take into consideration
RBC also only allows a pre payment of 10% per yr (not 15 or 20)
We use this simply as an example of the importance of each lenders options so clients can take these into consideration when selecting the right product for them.
Pre payment options vary:
5% lump sum per year
10% lump sum per year
15% lump sum per year
20% lump sum per year
On a $500,000 mortgage this = $25,000 to $100,000 per year you can pay down the outstanding principal – and lower your overall interest costs.
Other pre-payment options
Increasing your payments anywhere from 10% more to 100% more with each payment.
Again these options vary with each lender’s terms and conditions.
Accelerating your payments
Another one – which is really the most common and highly recommended is the payment frequency. Did you know changing your payments from monthly to accelerated bi-weekly takes approximately 4 yrs off the life of your mortgage?
Yup. It’s that simple.
Working with an experienced Mortgage professional – who is giving you unbiased advice and support is crucial to saving the most amount of money while maximizing your flexibility and control over the life of your mortgage
The prepayment option review is very important – and not to be overlooked.
