This is a topic that is often misinterpreted by consumers and knowing more about it and where to find this information can save you thousands of dollars.
Mortgages are structured over a period of time called ‘Amortization’ which can go up to 30 years and some lenders may allow even more. This is the time it will take for your mortgage to be fully paid off.
When you start repaying your mortgage, part of the repayment goes towards the principal amount that you have borrowed and part of it goes towards the interest. This is all set behind the scene by the lender, however reviewing your amortization schedule shows the break down of each element on monthly basis. At the beginning of your mortgage repayments, more of the repayment will go towards the interest and less towards the principal, thus making the mortgage an extremely complex product.
The scale will balance once you reach the mid point and from there on the reverse will take place. More of the repayment will go towards the principal and less towards the interest until the mortgage is fully paid off.
However, there is an option available with most institutional lenders that helps consumer to repay their mortgage quicker and save so much on the interest. ‘Pre-payment Privileges’ is the term that lenders use to inform you of ways you can over pay your mortgage in addition to your regular repayments. Whilst these terms vary from lender to lender, they all have one thing in common and that is any additional payment that you make towards your mortgage will go directly towards reducing the principal amount.
Most lenders allow you to make lump sum repayment as well as increasing your regular repayments by a certain percentage. By utilising this tool, you could be saving yourself thousands of dollars in interest over the life of your mortgage.
Ask the Experts
Do you have a mortgage that you want to know your Pre-payment Privileges on that mortgage?
If you are interested in finding out more about paying your mortgage off early or anything else mortgage related, contact our Orchid Financing team and have a conversation.
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