When learning about your mortgage options, you’re going to want to discuss prepayment options. It is important that you ask your lender about prepayment options as they could help you to pay off your mortgage a lot quicker.

Understanding prepayment options and charges before you take out your mortgage can really help you to make an informed decision.  Once you have read through this article, we hope you will be much better informed with regards to your choices and in turn, make the best decision for your mortgage.


What exactly are prepayment options?

These are options which detail the flexibility that you are offered as a borrower to change your monthly payment amounts, or even to allow you to pay off all, or some of your principal without incurring penalties.   There are options which relate to both the monthly payment amount, along with an annual payment amount too.  Monthly payment options are exactly as the name suggests, they allow you to increase your monthly payment by a certain percentage.  The annual payment option allows you to pay off a lump sum of cash each year to go towards your overall mortgage amount.

Why are these so important?

The prepayment options are so important to understand, as a lot of things can change over the term of your mortgage loan, which directly impacts on your ability to pay down your mortgage principal amount.  You might get some unexpected cash in the form of a bonus, inheritance, settlement or even a wage increase.  Paying any extra amount off your mortgage will help you to save money on your mortgage interest charges and essentially means you pay less whilst clearing your mortgage quicker than your original intended schedule set out.

Although this may seem a long while away, a lot of people actually find that they are able to repay their mortgage early. Prepayment charges can appear to be quite complex but understanding them in advance of signing up for your new mortgage is crucial, it is also something that any lender should be more than happy to run through with you in as much detail as you need.

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Using Prepayment Options to your Advantage

It’s important to know that you can, in fact, clear off your mortgage much quicker than you may think by taking advantage of the prepayment options which are attached to your mortgage.   It will all depend on exactly what options you chose for your mortgage when you took it out.  Your lender should be able to give you the choice of having different options when you sign up for a mortgage.  It is possible to have an annual lump-sum pre-payment option whereby you can repay 10, 20, or even 30% of your mortgage in a lump sum.

You may consider increasing the amount of your payments, either monthly, or annually in a lump sum.  Or, something which is known as “double up”, this is simply paying more on your pre-set payment dates.

This will all depend on your lender and the mortgage you are opting for.  A good example of this is where a lender will offer a prepayment option called “10+10”.  This will allow you to increase your payments by 10% and also to make a payment of up to 10% of your principal each year.

Although we have covered a few options within this article, it’s key to note that each and every lender offers something a little bit different to the next.  Always scrutinize your terms and conditions, and always ask your borrower to talk you through your pre-payment options in full to ensure that you fully understand their limitations and their boundaries.