Prepayment privileges will differ between lenders, including in relation to mortgage refinancing, but with the majority offering prepayment privileges as high as 20/20, this effectively means you can increase your regular payment by up to 20-percent. In addition, by making lump sum payments each year of up to 20% of your original mortgage amount, the result is an immediate reduction in the amount of interest you pay every month. This has the effect of reducing your scheduled amortization period.
Your mortgage broker can further qualify the following example, in which a mortgage is amortized over 25 years at a fixed rate of 2.44% with the lender allowing for a 20% increase in your regular payments. Should you make regular payments without a monthly increase, the remaining period of amortization after 5 years would be 20 years! However, if you make your regular payments with an added 20% to the determined amount payable, the remaining amortization after 5 years would be 14 years and 8 months, thus effectively reducing the amortization period by 5 years.
Another positive aspect to this is that if you take advantage of only this option; you could pay off your mortgage debt within 5 years. On these figures, it could be to your advantage to consult your mortgage broker and get their qualified advice regarding how you can benefit from this advantage.
For many of us, this is like a dream come true, but there is also the issue of financial realism. You could be questioning the purpose of all this, but, it does show there are options available to you for paying off your mortgage faster. They are also applicable if you have already, or are considering mortgage refinancing. Discuss with your mortgage broker the flexibility you have with standard mortgage options to pay your mortgage off significantly faster than you may think. However, take into consideration the possibility of once deciding to increase your payments, you may not be allowed to lower them until the end of the term. This is determined as being the period of time your mortgage agreement is in effect and includes your interest rate.
With any issue relating to a mortgage and its many, varied aspects, including mortgage refinancing it is wise to obtain some professional advice, whether in connection with an existing agreement or about entering into a new one.