Extra Payment Savings Calculator
How Extra Payments Work in Canada
Most Canadian mortgages include annual prepayment privileges — the right to pay down extra principal without triggering a prepayment penalty. These privileges typically allow:
- Lump-sum payments: 10-20% of the original mortgage balance per year (resets each anniversary year)
- Payment increases: Increase your regular payment by 10-20% per year
- Double-up payments: Some lenders allow you to double your regular payment once per year
Every dollar of extra principal payment eliminates future interest on that amount for the remaining life of your mortgage. The earlier in your amortization you make extra payments, the greater the impact — because those dollars avoid the most years of compounding interest.
Lump-Sum vs. Monthly Extra Payments
Both strategies work, but they suit different budgets:
Lump-Sum Strategy
Use your tax refund, bonus, or annual savings to make a single large prepayment once per year. A $100 annual lump sum on a $450,000 mortgage at 4.59% can save over $50,000 in interest and 4+ years off a 25-year amortization.
Monthly Top-Up Strategy
Add $200-$500 to your monthly payment. This is psychologically easier to sustain and delivers consistent compounding benefits throughout the year. $300/month extra on a $450,000 mortgage can save 3+ years and $30,000+ in interest.
The Rule of 72 Applied to Mortgages
Every dollar you pay toward your mortgage principal "earns" your mortgage rate in risk-free, guaranteed savings. At 4.59%, extra payments effectively earn you a guaranteed 4.59% return — better than most savings accounts and comparable to many conservative investments, with no market risk.
This makes mortgage prepayment one of the most reliable wealth-building strategies available to Canadians, especially those in higher tax brackets where investment returns are partially eroded by tax.
KOHO as a Mortgage Prepayment Tool
One practical strategy: open a dedicated savings account (like KOHO's no-fee account) and automatically transfer $200-$500/month into it. At year-end, use the accumulated balance as your annual lump-sum mortgage prepayment. This approach:
- Automates the savings behaviour without requiring willpower
- Earns interest on the accumulating balance before you deploy it
- Eliminates bank fees that would otherwise erode your savings
- Creates a visible "mortgage killing fund" that motivates consistent contributions
Build Your Mortgage Prepayment Fund — Zero Bank Fees
Every dollar saved on bank fees can go toward paying down your mortgage faster. KOHO's no-fee account helps you redirect $200-$360/year into extra mortgage payments. Use code 45ET55JSYA for a bonus.
Get KOHO Free — Use Code 45ET55JSYAFrequently Asked Questions
Any amount above your annual allowance triggers a prepayment penalty — typically 3 months' interest on the excess amount. Always check your remaining allowance with your lender before making large lump-sum payments.
Not automatically. Extra payments reduce your balance and therefore your amortization period, but your scheduled payment stays the same unless you formally request a payment reduction. This accelerated paydown is the goal.
The earlier the better — both within your term and within each anniversary year. Some lenders apply lump sums immediately to principal; others apply on the next payment date. Ask your lender how they process them.
This depends on your mortgage rate, marginal tax rate, and investment returns. Generally: if your mortgage rate exceeds your expected after-tax investment return, pay down the mortgage. If you have RRSP/TFSA room with strong return potential, the math may favour investing. This is a personal finance decision worth discussing with an advisor.