How to Use Prepayment Privileges to Pay Off Your Mortgage Faster
One of the most overlooked ways to save thousands on your mortgage is by using prepayment privileges. Most lenders offer them, but the details vary, so it’s worth knowing exactly what your options are.
What Are Prepayment Privileges?
Prepayment privileges let you pay more than your regular mortgage payment without penalty. The extra money goes straight toward your principal, which reduces your balance faster and cuts down the total interest you’ll pay.
Most lenders allow some form of:
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Lump sum payments – Often 15% or 20% of your original mortgage amount per year. Some allow it on any regular payment date, while others limit you to once a year.
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Payment increases – Many allow you to increase your regular payment by up to 10% or 20% without penalty.
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Double-up payments – Some lenders let you double a regular payment and apply the extra to your principal.
These percentages are always based on your original mortgage amount, not the current balance.
How It Works in Real Numbers
Let’s say you buy a home with a $500,000 purchase price and 5% down. Your regular monthly mortgage payment might be around $2,717.70.
If your lender allows a 15% payment increase and you bump your payment up to $3,125.35 per month, and keep that going, here’s what happens:
That’s a huge difference without changing anything else about your mortgage.
Why It Works
Every extra dollar you put toward your mortgage principal reduces the amount of interest you’ll pay in the future. The earlier you start, the bigger the impact—because you’re cutting down interest over the remaining life of the mortgage.
Even small prepayments can add up. Increasing your payment by $50 or $100 a month over the full term can shave years off your mortgage.
FAQ
Do all lenders offer the same prepayment options?
No. Most offer similar privileges, but the percentage allowed, how often you can make lump sums, and whether you can double up payments all vary.
Can I combine lump sums and payment increases?
Yes, most lenders will allow you to combine the different options as long as you stay within the annual limit.
Final Thoughts
Prepayment privileges are one of the simplest ways to get ahead on your mortgage. Whether you increase your payments, make a lump sum, or both, the savings can be substantial.
[Click here if you want to see exactly how much you could save with prepayments]