Payment Strategy – Extra Payments

Pre-Payment Privileges

Pre-payment privileges are the right to pre-pay a specified amount (set by the lender) of the principal balance of your mortgage (without incurring any penalties). The pre-payment amount allowed with most lenders varies from 10% to 25% of the total mortgage amount per annum.

In addition, some lenders will allow you to increase your mortgage payment as well. This may or may not contribute to your annual pre-payment allowance.

Here’s a look at some of your options (these vary by lender, so please consult with your Axiom Mortgage Broker) for full details:

Increasing Payments

Most lending institutions will allow you to increase the amount of your mortgage payment. Some allow an increase only once per year, others only once per term, and some as often as you wish. The amount of this increase varies from lender to lender but is typically 10% to 25% of your current monthly payment.

Lump-Sum Payments

Many lending institutions will allow you to make large lump-sum payments against your mortgage principal. These amounts go towards your principal and reduces the balance owing rapidly as well as the amount of interest paid.

Shortened Amortization

When you acquire a mortgage, you must decide on a term (typically 1, 3, 5 or 10 years) and an amortization (usually 25 years). Once your term is complete, you must renew your mortgage and can renegotiate your interest rate and amortization period.

Depending on your current financial situation and the going interest rates, you may wish to lower your amortization:

For example, imagine you signed a 5 year term with a 25 year amortization. After your first 5 year term was complete you would have 20 years left on your mortgage. If you could afford a slightly higher payment, you could renew this mortgage and sign another 5 year term but this time with only a 15 year amortization. This would shave 5 years off your total repayment time. In this way, a reduction in your amortization will result in your mortgage being paid off sooner and saving you substantially.

Your mortgage broker will analyze your particular situation and make recommendations on how to pay off your mortgage faster – saving you money, lots of it!

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