4. Making lump sum paymentsMost lending institutions will allow you to make lump-sum payments against your mortgage principal. As these amounts are applied to principal only, they reduce the outstanding balance of your mortgage.
The amounts allowed vary by lending institution and type of mortgage and can be up to 20 per cent, and sometimes more, of the original amount of your mortgage. If you borrowed $100,000 originally and your institution allows you to make lump-sum payments up to 15 per cent, you will be allowed to pay up to $15,000 extra every year.
You can usually only do this once a year, and your institution generally determines when it can be done.
This pre-payment option is not cumulative. In other words, if you did not make additional payments on your mortgage this year, you will not be able to accumulate the percentage of pre-payment allowed and double your pre-payment next year. In other words, in the example provided, you would not be able to double your payment from $15,000 to $30,000 because you did not make a payment last year.
