Will monthly mortgage payment amount change?

angelapeng

Inspired Forum Member
Registered
Aug 19, 2011
171
16
18
Vancouver
#1
Need to clarify one thing about the monthly mortgage payment amount.

In the mortgage agreement with the lenders, they allow you to pre-paydown the mortgage about 15-20%, which varies from different lender. Say for example, if your current mortgage balance is $500,000, the monthly payment is $1800, you are allowed to pre pay down 20% annually before the end of 2018. Then starting from 2019, your mortgage balance will be $400,000. My question is whether the monthly mortgage payment calculation will be adjusted since now the balance is $400K, instead of $500k. If, they are still the same at $1800, what is the ratio between the principle and interest considering the balance is reduced to $400K.

This question is for lender or mortgage broker, but I asked here in case you know. The purpose of this question is to strategize my cash position, manage the cash flow, and tax planning.

Thank you!
 

Derek3397

New Forum Member
REIN Member
Apr 30, 2015
22
5
3
#2
Need to clarify one thing about the monthly mortgage payment amount.

In the mortgage agreement with the lenders, they allow you to pre-paydown the mortgage about 15-20%, which varies from different lender. Say for example, if your current mortgage balance is $500,000, the monthly payment is $1800, you are allowed to pre pay down 20% annually before the end of 2018. Then starting from 2019, your mortgage balance will be $400,000. My question is whether the monthly mortgage payment calculation will be adjusted since now the balance is $400K, instead of $500k. If, they are still the same at $1800, what is the ratio between the principle and interest considering the balance is reduced to $400K.

This question is for lender or mortgage broker, but I asked here in case you know. The purpose of this question is to strategize my cash position, manage the cash flow, and tax planning.

Thank you!
Not a lender or mortgage broker but I would say your payment will stay the same amount but you would be paying more principal than interest because the interest portion is based off the amount left owing on your mortgage. It’s not simple math with the way lender calculates interest and how often they do in the year but in the simplest of terms I would figure to just take the amount left on your amortization as well as interest rate and divide your payments up to see how much interest you would be paying per payment. What’s left over of the 1800 should be all principal. Hope this helps and wasn’t overly confusing! Cheers


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Likes: ThomasBeyer

Vine Group

Frequent Forum Member
REIN Member
Mar 17, 2016
127
76
28
#3
Every lender has different rules around prepayments so you'll need to check with the lender, or simply look it up on their website. Prepayments are generally on the ORIGINAL loan amount at beginning of a term and not reduced balanced. Let us know if you have any additional questions or email us, finance@reincanada.com
 

angelapeng

Inspired Forum Member
Registered
Aug 19, 2011
171
16
18
Vancouver
#4
I just checked with the lender, yes, Vine Group is right, the prepayment is based on the original loan amount, not the reduced balance. Also, since my mortgage is fixed closed mortgage, the lender only allows 10% prepayment annually. In regards to the monthly payment amount adjustment, I actually have the option to choose either reducing the monthly payment or staying at the same amount, with pros and cons for each choice.
 
Likes: Derek3397