When you pay extra money in addition to your monthly mortgage payment, you have paid a mortgage curtailment. A mortgage curtailment shortens or ends a mortgage term before the agreed-upon date.
Video of the Day
You can choose one of two types of mortgage curtailment. A full curtailment involves paying off the remaining debt and interest in its entirety. With a partial curtailment, you do not pay off the remainder of the debt in full; rather, you increase your monthly payment.
Since a mortgage curtailment shortens the payment term, the interest accrued during the term will decrease as well. The amount of interest relief depends on the amount of additional principal paid and the number of times you make a curtailment payment.
Mortgage curtailments do not lessen your regular monthly payments. Your monthly payment amount remains the same throughout the term of your loan; however, curtailment payments shorten that term and thus save you money over the life of the loan.
Some mortgages punish borrowers for making curtailment payments with prepayment penalties, but these conditions have become less frequent than in the past. Lender portfolios look better when borrowers owe less money, so lenders have become comfortable with collecting curtailment payments and earning money faster instead of collecting prepayment penalties.