Things to consider prior to making a prepayment
Paying down your mortgage is a smart step that’s always encouraged.
We recommend you first consider the following for your financial well-being as making a lump-sum pre-payment on a mortgage is one sided. Once you’ve made the payment, there are only two ways to get the money back out. Sell or pay an exit fee to refinance.
This is what you should consider prior to a lump-sum payment:
1- Do you have any debts at an interest rate higher than your mortgage you can use the money for instead to stop paying unnecessary interest?
2- Do you have six months of living expenses set aside so you don’t have to acquire debt if something comes up?
3- Have you topped up your RRSPs or RESP if applicable to take advantage of any government matching programs or tax advantages that can result in an income tax refund?
4- Are you looking at doing any home renovations, new vehicle purchase or job changes in the next while?
5. Are you considering making another property purchase in the next while (as you will need a deposit handy in cash)
If all the above are covered, that’s awesome and congratulations in having this capital to pay down your largest debt! All lenders have different pre-payment terms and timing in which they allow. The goal is to get the most flexible mortgage initially, and we can help. This is the reason when The Angela Calla Mortgage Team sets up a mortgage initially, we start with the minimum payment, while other increases are happening separately once we have a strategy in place. If you decide to execute a pay down strategy with periodic payments, we can cancel that at any time with no costs. There is always a reason behind “why” we ask what we ask and “why” we set things up as we do initially with the end result being the lowest cost of borrowing and best wealth strategy being the result. Remember- check your statements. Even with confirmation a task has been complete, we are not the ones physically processing the payments and technology is not perfect. The borrower is ultimately responsible to ensure there strategies are carried out!
Please reach out to us directly with any questions. We are always here to help you and thos you care most about.