How to Curtail a Mortgage
A mortgage curtailment is a payment that shortens or ends your mortgage. Since a mortgage is essentially a lien against your home, if you only have one mortgage, then curtailing it can result in you owning your home outright or reducing your monthly payments. Considering the importance of your home and the danger of foreclosure, you may decide to make mortgage curtailment a high priority. In most cases, however, prepayment penalties will apply. If they do, weigh the advantages and disadvantages of curtailing your mortgage.
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Instructions
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Examine your mortgage agreement. There should be a section entitled "Prepayment Penalty" that contains a penalty clause. Read this section carefully.
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Examine the amortization schedule to determine how many monthly payments you have already made and how many payments you have remaining.
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Determine if prepayment penalties apply to your stage of repayment according to the terms of the penalty clause. Most prepayment penalties do not apply for longer than five years of repayment.
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Calculate the amount of any applicable prepayment penalties using the terms of the penalty clause.
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Use an online amortization schedule calculator (see Resources) to calculate your monthly payments after various amounts of curtailment payments. This will help you determine the optimal size of your curtailment payment. Remember to add any prepayment penalties to the total mortgage debt.
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Send a signed letter to your mortgage institution expressing your intention of curtailing your mortgage. This letter should specify the amount of the curtailment payment, the amount of the remaining mortgage (if any), a revised amortization schedule, and a proposal that the mortgage agreement be amended to reflect your curtailment payment.
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Meet with a representative of your mortgage institution to make your curtailment payment and sign the amendment to your mortgage agreement (containing a revised amortization schedule, or releasing the mortgage if you are paying off the entire mortgage).
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Tips & Warnings
It is probably best to pay off your most expensive debt before curtailing your mortgage. If you have credit cards that charge higher interest than your mortgage, pay them off first.
If you are paying off the entire mortgage, your mortgage institution should file a document with the local county clerk or property-records office that provides public notice that the mortgage has been lifted. Since mortgage institutions sometimes forget to do this, you should check these records yourself about 30 days after the mortgage is released.
