Mortgage Prepayment Calculator Canada

Why Mortgage Prepayments Are So Powerful

Mortgage interest is calculated on your outstanding balance. Early in your amortization, nearly every dollar of your payment goes to interest — very little reduces principal. An extra $500/month in the first years attacks principal directly, eliminating future interest charges on that amount for the remaining life of the loan.

On a $500,000 mortgage at 4.24% over 25 years, an extra $500/month from day one saves approximately $85,000 in interest and cuts 7+ years off your mortgage. That $500/month investment has a guaranteed return equivalent to your mortgage rate — better than most GICs or bonds.

Prepayment Privileges in Canada

Most Canadian mortgages allow prepayments without penalty within specific limits. Typical annual privileges:

• Lump sum payment: 15-20% of the original principal per year (e.g., $75,000-$100,000 on a $500K mortgage)
• Payment increase: 15-20% increase in regular payment amount
• Double-up: Some lenders let you double any single payment

Going beyond these limits triggers a prepayment penalty. Check your mortgage documents or call your lender to confirm your specific privileges.

Best Prepayment Strategies

Tax Refund Lump Sum

Canadians receive an average tax refund of $1,900. Applying this annually to your mortgage as a lump sum over 25 years saves approximately $28,000 in interest and cuts 3 years off your mortgage.

Annual Bonus Prepayment

If you receive a year-end bonus or commission, even half of it applied to your mortgage has compounding benefits. A single $5,000 prepayment in year 5 on a $500K mortgage saves approximately $8,500 in interest.

Accelerated Bi-Weekly Payments

Switching from monthly to accelerated bi-weekly payments (26 payments per year instead of 24) effectively makes one extra monthly payment per year. On a $500K mortgage at 4.24%, this saves approximately $35,000 and 2.5 years. See our bi-weekly mortgage calculator.