What does the term “curtailment” mean in relation to mortgages?

Curtailment refers to the action of making an extra payment towards the principal balance of a mortgage loan. This typically occurs when a borrower decides to pay more than the scheduled payment amount, directly reducing the principal. By doing so, it can lead to a decrease in the overall interest paid over the life of the loan and can shorten the duration of the mortgage. This method is a proactive way for borrowers to manage their mortgage more effectively and can result in significant long-term financial benefits.

The other options do not accurately capture the essence of curtailment. A reduction in the interest rate pertains to a change in the borrowing cost rather than a payment action. A delay in loan payments relates to missed or postponed payments, which can negatively affect a borrower’s financial standing. A type of loan modification involves altering the terms of a loan typically due to financial hardship, rather than simply making extra payments to lower the principal.