Prepayment Privilege

The right to repay periodically more than the scheduled principal payment without triggering a prepayment charge.

Typical prepayment privileges include:

• the right to make a lump sum payment once per year up to a certain percentage of the principal balance, usually ranging between 10% and 20%; or 

• the right to increase your regular monthly payment by an amount usually limited to between 10% and 20% of the original payment.

In general, the more restrictive the Prepayment Privilege, the lower the Mortgage Rate.  So, if you’re not expecting to have lump sum cash amounts available over the life of your mortgage, you may be better off taking a Mortgage with more restrictive Prepayment Privileges.