A pre-payment privilege is a mortgage term which allows a borrower to pre-pay their mortgage without incurring a penalty. When a mortgage has a pre-payment privilege, there is usually a lump sum payment privilege and a monthly payment privilege.
Pre-payment privileges can range from 5% to 20%, meaning a borrower can increase their mortgage payment by 5% to 20% each month, and that additional amount will be applied to their principal balance. When a borrower is allowed to make a lump sum pre-payment toward their mortgage, they are usually allowed between 5% to 20% as a lump sum payment toward the principal amount of their loan. This can be done annually within the anniversary date of the mortgage, not the calendar year.