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Pre-Paying a Mortgage Before Discharge

mortgage-prepaymentHomeowners who break a closed mortgage before maturity will often make a pre-payment before the mortgage is discharged. 

The idea is to reduce the mortgage balance and thereby pay less of a pre-payment penalty.

It’s a great idea if you have the funds to do it. Remember, however, that lenders have different policies on how close to the payout date you can make a pre-payment.

Some lenders, for example, won’t allow pre-payments to be made within 30 days of the date of discharge (the date you pay off your mortgage in full).

Therefore, if you plan to pre-pay a portion of your mortgage to reduce your penalty, remember to do two things:

  1. Ask your lender how close to your payout date you can make a pre-payment and still have that payment count towards reducing your penalty. (Allow several days regardless. You don’t want to cut it too close.)
  2. Make the pre-payment and then confirm that your lender has applied it to your account before your lawyer requests the payout statement.  Otherwise, your pre-payment might not reduce your balance for the purposes of penalty calculation.