Prepayment savings
Add extra monthly payments and / or annual lump sums (within your lender's privilege caps). See years off your amortization and total interest saved.
Your scenario
Result
Most A-tier mortgages allow 15-20%/yr lump sums + 15-20% payment increase penalty-free. Confirm your contract's privileges.
How much you can prepay without penalty
Every closed Canadian mortgage comes with prepayment privileges baked into the contract. Stay within those limits and you pay zero penalty for accelerating; exceed them and standard break-penalty math kicks in.
Standard A-tier privileges by lender
- BMO, First National, MCAP, Merix: 20% of original principal as lump sum + 20% payment increase per year
- TD, Scotia: 15% / 15%
- RBC, CIBC, Manulife: 10% / 10% (some products), 15% / 15% (others)
- National Bank: 10% lump sum but UNLIMITED prepayment if paid by mortgage anniversary
Confirm your specific contract — these are common defaults but products vary within each lender's lineup.
Strategies ranked by efficiency
- Annual lump from bonus / tax refund — most efficient per dollar contributed. Best timing is right after bonus or tax refund hits.
- Extra monthly amount — compounds smoothly. Best if cash flow has consistent slack.
- Accelerated bi-weekly — automatic, adds ~1 extra month per year. Good for set-and-forget personalities.
- Payment increase (one-time bump) — same as extra monthly but locked in for the term.
Why early years matter most
The same $5,000 lump sum in year 1 saves dramatically more interest than $5,000 in year 20 — because year 1 dollars stop generating interest for the next 24 years, while year 20 dollars only save 5 years worth. Compound your prepayments as early as possible in the amortization.
Should you prepay or invest?
Paying down a 4.84% mortgage = guaranteed tax-free 4.84% return. To beat it with investments, you need ~6.5%+ in a TFSA (more in a non-registered account after tax). Most Canadian borrowers come out ahead by prepaying first, then investing surplus.
Exception: if you haven't maxed your FHSA, RRSP, or TFSA contribution room — use those tax shelters first. Once they're full, mortgage prepayment wins for most situations.
Related
Questions about this calculator
- How much can I prepay on a Canadian mortgage?
- Typical privileges allow a lump sum of 10% to 20% of the original principal per year plus the ability to raise your regular payment by a similar percentage. The exact terms are in your mortgage contract, and exceeding them triggers a prepayment charge.
- When in the year should I make a lump-sum payment?
- As early as possible, and check whether your privilege resets on the calendar year or your mortgage anniversary. A lump sum applies entirely to principal, so every month it sits unpaid is a month of interest you did not need to pay.
- Is prepaying the mortgage better than investing?
- Prepaying earns you a guaranteed, tax-free return equal to your mortgage rate. An investment has to beat that rate after tax and after risk to win. The higher your rate and the closer you are to retirement, the stronger the case for prepaying.
- Does a lump sum lower my payment or my amortization?
- By default it shortens the amortization and leaves the payment unchanged, which is where the interest saving comes from. Some lenders will re-amortize on request and lower the payment instead — that gives up most of the benefit.