Question: What is a 20/20, 15/15, 10/10 Prepayment Option? What does it mean?
Answer: With "20+20" Prepayment Privileges, you can save thousands of dollars in interest costs by making small increases in your mortgage payments and prepaying some of the principal.
The First "20": Increase Your Mortgage Payments
Increase your mortgage payment by up to 20% over the current payment. This option can be exercised once each calendar year, at any time, without charge.
The Second "20": Make Lump Sum Payments
Prepay up to 20% of the original mortgage principal each calendar year. This option can be exercised in minimum amounts of $100 without charge, some conditions may apply.
You have an annual prepayment privilege of up to 20% of the original mortgage balance as well as the annual option to increase the monthly payment by 20% without penalty, combining the two options you need to keep within the 20% value of the original mortgage amount.
Example:
$100,000.00 mortgage with a 20/20 prepayment
a) Once a year pay 20,000.00
b) Once a year increase your mortgage payment by $200.00/ month and then put down $17,600.00 in that year
c) Only increase monthly payment of any amount.from $100.00- $1666.67
d) Keep payments the same in that year
The prepayment option is flexible and either can be used or not. Whichever method you use you cannot go over the maximum percentage for that year.
These options are very important. You may think that you will never use these options but you never know. If you should receive an inheritance or win a small lottery, you can use the prepayment option to pay down your mortgage without penalty.
Many Canadians do not keep their mortgage for the full 5 years. They may want to refinance or move to a bigger house. If their mortgage is not portable, they will have to pay a penalty to get out of that mortgage. You can use the prepayment clause for that year, so the penalty will be less.
Prepayment options can save you thousands of dollars in the life of your mortgage, it costs nothing to have them and are easily one of the best options you can have included in your mortgage.
Mortgage Calculator Tool
This calculator determines your mortgage payment and provides you with a mortgage payment schedule. The calculator also shows how much money and how many years you can save by making prepayments.
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