- Paying on the balance of a loan before it is due. Mortgage prepayments decrease the total amount of interest paid over the life of the mortgage. Penalties may or may not apply.
additional mortgage payments, accelerated mortgage payments, pre-payments, extra mortgage payments, mortgage pre-payments
Related Terms and Acronyms
- Additional Principal Payment — Definition,
- Extra money included with a loan payment to pay off the amount owed faster. Over time, this practice reduces the amount of interest paid.
- Amortization — Definition,
- Amortization refers to the process of gradually paying down the principal of a loan. Each payment toward the principal reduces your loan by that amount. This is different than an interest-only loan payment where the principal balance is never reduced. Amortization for a mortgage loan in Canada is normally 25 years, but can be as few as 5 years.
- Balloon Loan — Definition,
- A loan in which the payments aren't set up to repay the loan in full by the end of the term. At the end comes the balloon payment -- one that is larger than the other, periodic payments and pays off the remaining principal.
- Biweekly Accelerated Payment — Definition,
- A mortgage that schedules payments every two weeks instead of the standard monthly payment. The 26 biweekly payments are each equal to one-half of the monthly payment. The result for the borrower is a substantial reduction in interest payments because the mortgage is paid off sooner.
- Closed Mortgage — Definition, Important,
- Closed mortgages involve a strict repayment schedule of a specific amount with optional limited lump sum payments and payment increases.
- Down Payment — Definition,
- The portion of the purchase price a buyer pays, in cash, at the time the loan originates.
- Interest Rate Differential (IRD) — Acronym, Very Important,
- The penalty one pays for breaking a mortgage.
- Lump Sum Payment — Definition,
- An extra payment made to reduce a loan.
- One-time single-sum payment or payout.
- Mortgage (mtg) — Abbreviation, Important,
- A mortgage is a contract stipulating a specific real property, typically a residence or building, as collateral for a loan. The mortgage incurs a rate of interest that varies according to term and other features.
- Mortgage Payment — Definition, Important,
- A periodic payment used to pay off a mortgage's principal and interest.
- Pre-payment Clause — Definition,
- A clause that stipulates the amount of principal a borrower may prepay ahead of schedule without penalty as well as the prepayment penalty for larger prepayments.
- Pre-payment Penalty — Definition,
- A lender's charge to the borrower for paying off the loan before the end of the term.