When a borrower takes out a debt they are required to make the monthly payment on a consistent basis or be subject to penalties, fines, and fees. An “Or More Clause” is a mortgage clause that grants a party to pay beyond normal payments. Such payments would constitute a payment towards the principal, which would ultimately reduce the mortgage balance.
A borrower that earns more money than expected or has the financial ability to pay down payments quicker has the ability to do so without penalty. While certain mortgages contain prepayment penalties to pay off the loan sooner than initially stated or to refinance prior to the minimum duration of a mortgage, prepayment penalties do not bar borrowers from making payments that surpass the agreed payment amount.
Instances When a Borrower Would Utilize “Or More Clauses”
A borrower can utilize “or more clauses” in two main situations. The first being that the interest rate on the mortgage is too high and the borrower wants to pay less interest and therefore pays more towards principal payments. This strategy would reduce the amount a borrower would be subject to make interest payments.
Another common scenario a borrower would use the “or more clause” is when the borrower has a hard money loan, with a higher loan interest. In this situation, the borrower could pay a larger payment, one portion of which would go towards the regular payment and the other to pay down the debt. Both instances when a borrower would make a higher than agreed upon payment is to avoid paying more money in interest.