A lump-sum prepayment is an extra payment made toward the principal of your mortgage, on top of your regular payments. It helps reduce the outstanding balance faster and lowers the total interest paid over the life of the loan.
How It Works
Many lenders allow borrowers to make lump-sum payments up to a certain percentage of the original mortgage amount each year—commonly 10% to 20%. These payments go directly toward the principal, which reduces future interest charges.
Benefits
- Faster repayment: Helps pay off your mortgage sooner than scheduled.
- Lower interest costs: By reducing the principal, you save on future interest.
- Flexibility: Great use of extra funds, such as bonuses, tax refunds, or inheritance.
Limitations
If you exceed your lender’s prepayment privilege limit, penalties may apply. Always check your mortgage terms to understand how much you can prepay without extra charges.
Final Thoughts
Lump-sum prepayments are a powerful way to reduce debt and interest costs. Used strategically, they can shorten your mortgage timeline and increase long-term savings.