What Are Payment Privileges?

Payment privileges are flexible options included in many Canadian mortgages that allow you to make extra payments on your mortgage without penalties. These privileges are an excellent way to save money on interest and pay off your mortgage faster, giving you greater control over your financial future.

As a mortgage broker with over 23 years of experience helping clients in Hamilton, Ancaster, and across Ontario, I often advise clients on how to maximize these privileges for their financial benefit.

Common Payment Privileges

1. Lump-Sum Payments

• What It Is: A lump-sum payment allows you to put extra money directly toward your mortgage principal.
• Limits: Most lenders let you make lump-sum payments up to a specific percentage of your original mortgage amount each year, typically 10–20%.
• Example: If your original mortgage was $400,000 and your lump-sum allowance is 15%, you can pay up to $60,000 in a single year without penalties.

2. Increasing Regular Payments

• What It Is: You can increase the amount of your regular mortgage payments, which reduces your principal balance faster.
• Limits: Many lenders allow you to increase your payments by 10–20% of your original payment amount.
• Example: If your monthly payment is $2,000, and your lender allows a 15% increase, you can boost your payment to $2,300.

3. Double-Up Payments

• What It Is: Some lenders let you make an extra payment equal to your regular payment on your scheduled payment date.
• Example: If your bi-weekly payment is $1,000, you can pay $2,000 instead on one or more payment dates.

4. Payment Frequency Changes

• What It Is: You may be able to adjust how often you make payments—for example, switching from monthly to accelerated bi-weekly payments.
• Why It Matters: Accelerated payment options allow you to make one extra payment per year, reducing your overall amortization.

Why Use Payment Privileges?

1. Pay Off Your Mortgage Faster
   Extra payments go directly toward reducing your mortgage principal, shortening your amortization period.
2. Save on Interest
   By reducing the principal sooner, you pay less interest over the life of the mortgage.
3. Flexible Financial Planning
   You can take advantage of bonuses, tax refunds, or extra income without being locked into higher regular payments.

Important Things to Consider

• Know Your Limits: Each lender has different rules for payment privileges, so it’s essential to understand what’s allowed with your mortgage.
• Penalties for Overpayment: Exceeding your payment privilege limits can result in prepayment penalties.
• Fixed vs. Variable Mortgages: Most mortgages, whether fixed or variable, offer payment privileges, but the specifics can vary by lender.

How I Help You Maximize Payment Privileges

As your mortgage broker, I ensure you understand and take full advantage of your payment privileges:

• Tailored Advice: I’ll explain your lender’s specific rules and help you determine the best way to use these privileges based on your financial goals.
• Flexible Mortgage Options: I work with lenders that offer generous payment privileges, so you have more ways to save.
• Ongoing Support: If your financial situation changes, I’m here to help you reassess and adjust your mortgage strategy.

Key Takeaway

Payment privileges are a powerful tool to help you pay off your mortgage faster and save money on interest. If you’re not sure what your current mortgage allows—or if you want to explore options with more flexible privileges—let’s connect. I’d love to help you find the right solution for your needs!

Call me at: 905-929-1199
Email me at: lamalfi@tmacc.com