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The Mortgage Checklist - Part 2 (Extra Payments)

If you're applying for a mortgage, there are some things you will need to know.  As a result, we have created a mortgage checklist, so you can ask your lender/broker the right questions.  Here is part 2 of 9, featuring questions about extra payments.

Extra Payments

8. How much extra can I prepay each year without penalty?

Standard "closed" mortgages offer annual "lump-sum" prepayment options ranging from 10 to 30 per cent of the original mortgage amount.

Don't pay for more prepayments than you need (only 18 per cent of Canadians use lump-sum prepayments in any given year). But, just as importantly, don't underestimate the prepayment options you'll need. Prepayment flexibility can help you reduce a mortgage penalty, or it can save you interest in the event of a cash windfall.

9. When can I make these prepayments?

The best lenders allow you to make prepayments any time during the year, in multiple instalments.

 10. How much can I increase my ongoing payments each year?

Most mortgages let you increase your ongoing payments by 15 to 20 per cent each year. Some go up to 100 per cent and/or offer double-up payments.

11. What payment frequencies do you have?

Examples include monthly, bi-weekly, weekly, and semi-monthly.

Accelerated payments (like "accelerated bi-weekly") are the equivalent of making one extra monthly payment per year. RBC Mortgage Specialist Jennifer Bissonnette notes: "A 25 year amortization can be reduced to 22 years simply choosing accelerated bi-weekly payments instead of monthly." Being mortgage-free three years sooner will cost you just $59 more every two weeks, she adds. That's on a $300,000 mortgage at 3.69 per cent with a 25-year amortization.