The Power of Prepayment Options
Michael Hallett • March 2, 2016
Do you have a Mortgage Action Plan (MAP)? If not, it's time to plan your road MAP to mortgage free living. Every lender provides options, but very few take advantage of them. These mortgage benefits are called PREPAYMENT OPTIONS. The 3 most common prepayment options are: adjust the frequency at which the payments are made (weekly, semi-monthly, bi-weekly, monthly and accelerated), increase the monthly payment amount (there is a maximum monthly percentage) and lump sum (or balloon, also a maximum percentage of the original mortgage balance) payment. Make sure you know how to utilize them to the fullest and what your maximum amounts are. Don't feel obligated to maximize the prepayment options but at the very least make extra payments, your retirement savings will thank you later.
Only 32% of all mortgage borrowers exercise their contractual right to make significant efforts to accelerate repayment, including taking one or more of the following actions in the past year:
- 16% have voluntarily increased their monthly payments.
- 15% have made a lump sum (balloon payment) contribution to their mortgage.
- 6% have adjust or increased their payment frequency.
Monthly Increase Payment
If choosing an accelerated bi-weekly repayment schedule does not work for your plan, then maybe you might be able to consider adding an extra principal payment to your regular monthly mortgage commitment. The graphic below illustrates how the principal amount is reduced when utilizing the monthly increase prepayment option. By adding $100 to your monthly mortgage you can save $10,729 in interest and reduce the life or the mortgage by 5.9 years.
Annual Lump Sum or Balloon Payment
The last prepayment option you can utilize to pay down your mortgage sooner is called Balloon payment. You are contractually allowed to pay up to make annual payments on the anniversary date. The graphic below shows a $1,000 balloon payment. An annual contribution of $1,000 will reduce your mortgage by 5.2 years and save you $9,719 in interest.
My Personal Scenario
You are likely asking yourself right now, so what does Michael's road MAP look like. Well, I'm happy to share that with you. My current lender allows me to increase my monthly payments by 15%, make a annual lump sum payment of 15% (of the original mortgage balance) and/or double up my contractual minimum monthly commitment. I have elected to exercise my contractual right to utilize the 15% monthly increase to the maximum. My monthly contractual payment is $2,074.98. By maximizing the 15% monthly increase my adjusted payment is $2,386.23 which is an extra $311.24 per month. If I had decided to only make the minimum monthly payments of $2,074.98 then the life of my mortgage would be 25 years remaining at the end of this current term (maturing July 2017). However, with the extra payment of $311.24 per month I've effectively reduced the life of my mortgage to (currently) 21 years 2 months, even less when it matures in 17 months. If I were to keep maintaining the same course of action as above for the entire life of the mortgage the revised amortization would be reduced from 30 years to 15 years 9 months saving me $114,827.94 in interest.
Why not join the 32%ers elite club?! The contribution can be minimal and usually unnoticeable on a day-to-day basis, the pay-off is years sooner though. The power of making extra payments is overwhelming. Ask me how to increase your equity position. Your bank account will thank me later.
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One of the most common questions, “how long does it take to get pre-qualified?” My response, “how fast can you provide the information I need.”
Playing in the forest today. Always fun exploring. #mountainbikingmortgagebroker
Mortgage Brokering meets mountain biking and craft beer. A couple months ago I set for a bike ride with the intention of answering few mortgage related questions, mission accomplished. Any good bike ride pairs nicely with a tasty beer which we enjoyed @parksidebrewery. Hope you see the passion I have for brokering, biking and beer. @torcabikes #mountainbikingmortgagebroker
My thighs were cold all day, it was ‘that’ deep. I was choking on snow all day.
The weather report was 36 cm of new snow, it was more like 45-50 cm of light deep powder. Insane day of skiing.
Spotted a ski-bunny today @kirstinjhallett so I trapped ‘er. 📸 credit @troy.hartley
Aidan leading the pack up the Lemming Line in seek of fine fresh powder.
Beautiful British Columbia! A cold winter day at its finest.
Aidan and I braved the -19C temperature and windy conditions for the boot to knee deep turns...it was a no-brainer.
Happy Holidays. Seasons Greetings. Merry Christmas. All the best from Kirstin, Aidan and Michael. Enjoy your family time.
Snow report for today was boot to knee deep in places. Simply an awesome day rippin’ with the kids, I had to show them that I still got it. 📷 credit @jhalskiing
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TEASER alert...at thats what I think they call it in the business. Years ago a wrote a blog called BEERS BIKES AND MORTGAGES. I some how (in my head) blended all 3 topics into 1 blog. Simply put, I enjoy aspects of all 3 with each of them providing something different. I re-united with the talented Regan Payne on a project that I think will shed a bit more light on who I am and what I do. #craftbeer #mountainbike #mortgagebrokerbc #dlccanadainc
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Extreme tubing, watch until the end. Aidan manages to hold on.
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Good thing there were a few other vehicles with winches on the front.
He was OK, thumbs up. The roll cage and 5-point seat belt did its job.
My sons intro to operating a side-by-side on his own. Watch to the end.
The Lookout over looking Tulameen BC. Took some 4x4ing to get there, but we did it.
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This would have been a fun stunt once upon a time!
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The snow report suggested 8 cm had fallen, it was more like 25-30 cm.
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I saw this hat on Instagram, that very moment I knew I needed it. As a BC boy born and bred The Outdoorsman hat needed to be added to my collection. As someone who loves BC and most things outdoor, I’m now glad I have a cool hat to wear and fly the flag of BEAUTIFUL BRITISH COLUMBIA. It will be in my bag for all post-exploration celebratory cold pints. If you want to check them out or add one to your collection go to @nineoclockgun ...and yes my facial hair matches the hat as well.
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This is a great start to the day!
No better way to share the great outdoors than with friends. @troy.hartley @mike_ilic711 @j_penner70
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A tasty beverage while on the water yesterday from @backcountrybrewr and @backcountrybrewing
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Whistler slick rock is my favourite.
Wood to wood gap in Whistler.
Passing underneath the Ironworkers Memorial Bridge on the return journey of dinner-by-boat. No filter.
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Aidan is captaining the watercraft, mom in just the passenger. Kalamaka Lake.
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Saratoga Beach fire.
Canadian tuxedo.
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Zoa Peak, Coquihalla summit 1,500 vertical metres of skiing.
Distancing myself from the real world!
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Does anybody need or want any firewood? It’s free...you come pick it up.
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When you apply for a mortgage, your employment history and status carry a lot of weight. Even if you feel secure in your job, lenders need proof that your income is reliable and will continue. To them, your employment status is one of the strongest indicators of whether you can make your mortgage payments long term. Here’s how lenders typically view different employment situations: Permanent Employment This is the gold standard. Once you’ve passed any probationary period and hold permanent status, lenders see you as a lower risk. It shows that your employer is committed to you, and your income is steady. Probationary Periods If you’re still on probation—usually 3 to 6 months, though sometimes longer—lenders may hesitate. That’s because your employer can end your contract without cause during this period. Once probation is over, you’re considered more secure. That said, context matters. If you’ve worked with the same company for years as a contractor and just transitioned into full-time employment, lenders may accept a letter from your employer confirming that probation is waived. Documentation is key here. Parental Leave Being on or about to take parental leave doesn’t mean you can’t qualify for a mortgage. As long as you have a letter from your employer guaranteeing your position and return-to-work date, lenders can use your regular salary—not your leave income—when assessing your application. Term Contracts This is one of the trickiest categories. Even highly skilled professionals with strong incomes can face challenges here. A term contract has a start and end date, which makes lenders question the stability of your future income. To use term-contract income, lenders generally want to see at least two years of history, or proof that your contract has already been renewed. The more evidence you can show of consistent employment, the stronger your case will be. The Bottom Line If you’re planning to apply for a mortgage, it’s important to understand how your employment status could affect your approval. Whether you’re starting a new job, coming back from leave, or working under contract, lenders want documentation that proves your income is reliable. 📞 If you’ve recently changed jobs or are planning a career shift, let’s connect. I can help you prepare your file so you qualify with confidence and avoid surprises in the approval process.
When you’re buying a home, two terms often cause confusion: deposit and down payment . While they’re related, they serve very different purposes in the homebuying process. Here’s what you need to know. What Is a Deposit? A deposit is the money you provide when you make an offer on a property. Think of it as a show of good faith that proves you’re serious about purchasing. How it works : Typically, you provide a certified cheque or bank draft that your real estate brokerage holds in trust. If your offer is accepted, the deposit remains in trust until the deal moves forward. If negotiations fall through, the deposit is refunded. Connection to your down payment : Once the sale is finalized, your deposit becomes part of your total down payment. Why it matters : The amount is negotiable, but a larger deposit can make your offer more attractive in a competitive market. Keep in mind, however, that if you back out after conditions are removed, you risk losing your deposit. What Is a Down Payment? Your down payment is the amount you contribute toward the purchase price of your home when securing a mortgage. Minimum requirement : In Canada, the minimum down payment is 5% of the home’s purchase price. Anything less than 20% requires mortgage default insurance. Sources : Down payments can come from your savings, the sale of another property, RRSP withdrawals (through the Home Buyers’ Plan), a gift from family, or even borrowed funds. Example: How They Work Together Imagine you’re buying a $400,000 home with a 10% down payment ($40,000). When you make your offer, you provide a $10,000 deposit . Once conditions are met, that deposit is transferred to your lawyer’s trust account. At closing, you add the remaining $30,000 to complete your full down payment. The lender provides the rest—$360,000—through your mortgage. The Bottom Line Your deposit shows commitment and secures your offer, while your down payment is what makes the mortgage possible. Together, they work hand in hand to get you into your new home. 📞 If you’d like clarity on deposits, down payments, or any other part of the mortgage process, let’s connect. I’d be happy to walk you through it step by step.
