Making a lump sum mortgage payment

“Home Sweet Mortgage-Free Home.” Shorten your mortgage with a lump sum payment (or two).

April 2021 ​ 4 min read

There's nothing like that feeling when your home is paid off and all yours. A mortgage-free home is a valuable asset, and eliminating those pesky mortgage payments helps you pay for other things. It's a primary financial goal for many Islanders, who see it as a major step toward financial freedom, especially in retirement.

One way to achieve that goal sooner is to make a lump sum payment when your mortgage term ends and/or each year on your mortgage anniversary. If you have the funds, it's well worth considering.

What is a lump sum payment?

A lump sum payment is a one-time amount of money paid into your mortgage on top of your regular payments. Put simply, if you pay a lump sum of $20,000, the principal amount you have left to repay immediately reduces by $20,000. This triggers several other benefits, ultimately saving you money and shortening your mortgage.

Why make a lump sum payment?

A lump sum payment is a great option if you have some cash to hand that you don't need for something else. There are some clear benefits:

  • Lower your mortgage payments to improve your cash flow
  • Reduce how much interest you pay over the lifespan of your mortgage
  • Pay off your mortgage sooner

Good to know: Another way to shorten your mortgage and save on interest is to increase your mortgage payment when you renew, and once a year on or after your mortgage anniversary. 

When to make a lump sum payment

You can make a lump sum payment any time, but there are just two occasions when you can take advantage of a penalty-free lump sum payment:

  1. At the end of your mortgage term when you renew
  2. Each year on the anniversary of your mortgage

When you renew your mortgage you can pay any lump sum amount. On your mortgage anniversary you can pay down up to 20% of the amount you borrowed as a present to your future self. Happy Anniversary!

How to make a lump sum payment

If a lump sum payment sounds like a good option for you, save and earmark the amount you want to pay into your mortgage so you don't use it for something else. When your current mortgage term ends, and/or your annual mortgage anniversary comes around, talk to us about making a one-time, penalty-free payment to bring that mortgage-free feeling a big step closer.

Other topics to explore:

 What do you need to refinance?

 How to make good borrowing decisions

 It's the perfect first home, but...

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