5. Paying extra on your payment datesMost lenders will allow you to make additional payments on your mortgage, sometimes referred to as "
Double-Up" payments. These extra amounts are principal only, and reduce your mortgage balance, which helps you pay your mortgage faster.
Although there are some limitations, which vary by institution and type of mortgage, you can generally pay up to double your normal mortgage payment on any payment date. Some lenders may let you decide how much extra you pay (i.e., they may allow "partial doubling"), and when you pay it. Your lender might even agree to automatically withdraw the money for the extra payment from your account on every payment date.
With double-up payments, the limits to your payment increases are not as strict as in pre-payment option 3 outlined above (100 per cent rather than up to 25 per cent), and you may stop making double payments at anytime.
Some institutions, however, may deduct your total extra payments from the amount of the lump sum you are allowed to make (
see option 4, above).
For example, let's assume that the monthly payments on your original $100,000 mortgage are $1,000 and that you decide to make an extra $500 payment on every payment date and your institution allows "partial doubling" of payment amounts. Let's also assume that your institution allows you to make lump sum payments of 15 per cent of your original mortgage amount every year. Here is how some institutions will determine your maximum lump sum amount for a given year.
Example – Maximum lump sum payment allowed
| Original mortgage amount |
$100,000 |
| × 15% |
$15,000 |
| Minus: |
- |
| Extra payments ($500 × 12) |
$6,000 |
| |
|
| Maximum lump sum payment allowed |
$9,000 |
When shopping around it is important that you ask the lender what are the prepayment options and conditions to allow you to make a decision on the best prepayment option.
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