The mortgage application process can be intimidating for many people since they are unfamiliar with all elements. Most individuals frequently walk straight to their financial institution without examining crucial variables such as mortgage features, privileges, and prepayment penalties, all of which impact your mortgage payment and your financial future. Our team at Dominion Lending Centres Nasakasa is more than qualified to give you all the crucial information to know about your mortgage. Here are the components of your mortgage payment and their roles in deciding how much you must pay and how fast you can pay it off in full.
With regards to your regular payments, there are two fundamental parts included: principal and interest. Together, your principal and interest are the amounts you committed to taking care of every month to pay down the sum of your loan. Your loan principal is the sum that you first borrowed and must payback. As you make your month-to-month installments, your principal balance decreases. Mortgage interest is a month-to-month rate that lenders charge as a fee for the loan. At first, your bank will apply a more significant part of your installment towards the interest. Over the long haul, your lender will increase the amount going towards the principal.
Did you know that you determine how often you pay your mortgage? Known as the payment frequency, this will determine how quickly you will pay down your mortgage. Essentially, if you opt to increase your payment frequency, you will pay less interest and lower the principal faster. While this is established when your mortgage is negotiated by the lender initially, you may be able to alter it later in the life of your mortgage.
Monthly – payments are made once a month, 12 payments per year
Semi-Monthly – payments are made twice a month, 24 payments per year
Accelerated Bi-Weekly – payments are made every two weeks, 26 payments per year
Accelerated Weekly – payments are made once a week, 52 payments per year
When you increase your payment frequency, you end up making one more payment every year. This may save you hundreds of dollars in interest over the life of the loan. If paying off your mortgage sooner is a financially attainable objective for you, a more frequent payment plan may be the best option.
A prepayment privilege is an additional amount you can prepay towards your mortgage without having any prepayment penalties. Prepayment privileges depend on the lender. When it comes to pre-paying, each lender has its own set of rules. For example, the amount you pay in advance when you can make prepayments varies even if you are permitted to prepay. Prepayment rights allow you to raise your regular payments by a particular percentage, as well as make a lump-sum payment up to a specified amount or percentage of the initial amount.
If you would like to discuss the payment options before locking yourself into a commitment, we welcome you to give us a call. If you would like more information or help regarding payment frequencies and pre-payment options, our office is ready to help at 905-997-7001.