# Mortgage prepayment options/various lenders.



## bean438 (Jul 18, 2009)

So Royal lets you increase payments, prepay 20% each year and "double up" each payment (min 100.00).

BMO and PCF don't have double up, but they allow a 20% prepayment each year.

The disclaimer says non cumulative but does that mean you can prepay up to 20% ONCE per year, or can I do it throughout the year?

i.e 100K mortgage:

1.prepay up to 20K once, or

2. prepay 1K in January , then 500 in Feb, 500 in March, then 18K in July, etc?

What are your experiences with various lenders. So far it seems Royal has the best options, unless their "double up" is the same as the others prepayment options, although Royal has prepay in addition to double up, and double up has no cap. (that i could find)


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## brad (May 22, 2009)

We have our mortgage with ING, which lets you prepay up to 25% in a given year with no penalty. You can either do a lump-sum of 25%, a few lump-sum contributions that together add up to 25%, or you can increase your monthly payments by a cumulative total that adds up to 25% of the original mortgage each year.

You can do any of those things as long as the total prepayment of all of them together doesn't amount to more than 25% of your original mortgage amount. So on a $100K mortgage, your prepayment limit for the year is $25K, but it doesn't matter whether you pay that $25K in a lump sum, in four installments, or in extra payments every month.


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## bean438 (Jul 18, 2009)

Funny you mention ING. I am looking at their variable 2.05% mortgage.

Up to 25% each year, however you can do it sounds pretty flexible to me.


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## brad (May 22, 2009)

bean438 said:


> Funny you mention ING. I am looking at their variable 2.05% mortgage.
> 
> Up to 25% each year, however you can do it sounds pretty flexible to me.


We are really happy with ING. We also have our homeowner's insurance through them, and it's very reasonable.

One thing to note: they are picky about who they give mortgages to. We were preapproved in one or two days, but getting the formal approval and agreement took us right up to the deadline on our offer, they called my employer, ran credit checks, etc., everything by the book. They are very cautious and asked lots of questions. That's a good thing, but it does mean you have to be prepared for a bit of nail-biting as you wait for the formal approval to come through.


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## bean438 (Jul 18, 2009)

Thanks for the heads up. I dont see any problems. I own my house already and am simply converting a HELOC to a mortgage, so however long it takes, it doesn't matter. No deadlines to meet.


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## OhGreatGuru (May 24, 2009)

"non cumulative" I think would mean that if you don't use your 20% prepayment privilege in the first year, for example, you can't prepay 40% in the second year. Use it or lose it. 

I don't know about small multiple payments spread over the year. It used to be that if you had a pre-payment privilege, it was generally on the anniversary date of the mortgage. But there are so many variations now there seems to be no such thing as a "standard" mortgage. Better to ask the mortgage specialiast at the bank to clarify this.


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## brad (May 22, 2009)

OhGreatGuru said:


> It used to be that if you had a pre-payment privilege, it was generally on the anniversary date of the mortgage.


For the lump-sum payment, it used to be that way with ING as well, but they changed it last year (or the year before) so you can now make as many lump-sum payments as you like in any given year, as long as they add up to less than 25%.

Of course, you can prepay more than 25%, but you'll have to pay a penalty.


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## Racer (Feb 3, 2010)

Some confusion lies in that there actually is a document called Standard Mortgage Terms. I am only familiar with the Alberta context, but a quick google showed that Ontario lenders can use this document as well if they choose. The problem is that it is really hard to know the difference between "standard mortgage terms" and "Standard Mortgage Terms". 

The Alberta SMT provides the 3 options you describe for prepayment. Here's the link to the Ontario doc I found: http://www.teraview.ca/ereg/fidocs/IGOntarioStandardChargeTerms200430.pdf

Lenders do not have to adopt the SMT, however, and can deliver different mortgage products featuring different clauses. Some lenders are considered more hostile than others.

As an example, my husband's mortgage term with MCAP was up and he opted to renew with just a 6-month convertible fixed-rate mortgage, so we could figure out what strategy we adopted in the long term. Foolishly, we did not review the fine print. Imagine our surprise when we called MCAP for the early pay-out penalty fees and they informed us that there was a clause preventing ANY early pay-out whatsoever. I let them know that I believed that their failure to draw that clause to our attention was contrary to the Fair Trade Act. They quickly waived that clause. We ended up opting to wait until April 2010, anyways, after calculating the early payout penalty fees. 

The nice thing about the SMT is that they are drafted in plain language, very straightforward to read. Not the case with other mortgages packed with archaic legalisms, paragraph-long sentences, etc.


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## Oldroe (Sep 18, 2009)

TD allows you to adjust your amortization period any time. This was a big selling point for me with seasonal overtime.


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## Racer (Feb 3, 2010)

That was the most attractive part for us too. We are (well, were) planning to use TD for our April mortgage. 

We have sometimes variable income, and when we get a windfall the worst thing for us is to keep it sitting in our bank account... I can almost hear it singing to me: "Spend me...spend me..."



It's nice to know that you can shorten or lengthen that amortization period with a quick call to the bank. I believe there's a clause in the SMT that the lender must agree to those changes, but I doubt there are very many occasions where that agreement is actually withheld.


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## bean438 (Jul 18, 2009)

So by raising/lowering the amortization period the payments go up/down. 
What is the advantage of this over a regular mortgage at a rate you can afford ib the lean years with prepayment options during the rich years?


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## Oldroe (Sep 18, 2009)

By lowering your amortization period you pay off principle.

In my case Oct. threw Feb. were high income months and I'd double my payments some times triple, then we'd go back to to regular work week and a more comfortable amortization period. Strikes were always a concern just call TD and make it 25 year amortization.


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## Shayne (Apr 3, 2009)

I am a huge fan of 35 year (40 was better) mortgages with ample prepayment privileges. This ensures that you have cash flow when you need it and works great as long as you make your prepayment to bring your amortization period down and lower your total interest costs.

If you only qualify by using a 35 year amortization period you may want to rethink your purchase unless you know your income will be rising in the next few years.

We purchased our home in July of 2008 with a 40 year amortization. A $316K mortgage would result in $414K in interest payments. Absolutely insane!

Anyhow, we have our cash flow and make prepayments. Our prepayments have already brought us down to a 21 year amortization and saved us $140K in interest. The plan is to keep making prepayments and pay it off in the next 3.5 years. If we can accomplish this we will keep our interest costs under $45K.

My belief is that the average person can shave years off of their mortgage and save thousands of dollars if they have the discipline and want it bad enough.


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