Editor's note, October 6, 2026: this article was reviewed and rewritten in our accuracy check. An earlier version contained savings figures and 'typical' prepayment limits we could not support; the worked example now uses Canadian compounding and is computed, not estimated; they have been removed or replaced with figures from the sources listed at the end of the article.
Every extra dollar you put against your mortgage principal saves the interest that dollar would have cost for the rest of the amortization. Most mortgages let you prepay some amount each year without a penalty; the exact privileges are set by your lender and written in your mortgage. Here are the main strategies, with a worked example.
The example
A $600,000 mortgage at 4.5% (illustrative), 25-year amortization, compounded semi-annually as Canadian fixed-rate mortgages are. Monthly payment: $3,321. Total interest if nothing changes: about $396,000. We assume the rate stays the same for the whole amortization, which it won't; the comparisons still show the size of each effect.
1. Accelerated bi-weekly payments
Pay half the monthly payment every two weeks. Because there are 26 bi-weekly periods in a year, you make the equivalent of one extra monthly payment a year. In the example the mortgage is paid off in about 21 years 8 months, and interest falls by about $60,000. (Plain "bi-weekly" payments, which just divide the annual total by 26, save very little.)
2. Annual lump sums
Most lenders allow a lump-sum prepayment each year up to a percentage of the original amount. In the example, an extra $5,000 at the end of each year pays the mortgage off in about 20 years 7 months and saves about $78,000 of interest. Check your limit and whether unused room carries forward (usually it doesn't).
3. Increase your regular payment
Many mortgages let you raise your payment once a year by a set percentage. Raising the example payment by 10% (to $3,653) pays it off in about 21 years 3 months and saves about $68,000.
4. "Double-up" payments
Some lenders let you make an extra regular payment whenever you like, within your annual prepayment limit.
5. Prepay at renewal
At the end of each term you can usually pay down any amount, or change your amortization, without a penalty. That's a good moment to put a bonus or savings toward the balance.
Watch the limits
Paying more than your prepayment privileges allows triggers a penalty, usually the greater of three months' interest and the interest rate differential on a fixed-rate mortgage. Ask your lender how much prepayment room you have left before sending a lump sum.
Is prepaying the best use of the money?
Compare it with your other options: paying off higher-interest debt first, keeping an emergency fund, and using registered savings room such as an RRSP or TFSA. The interest you save by prepaying is a guaranteed, tax-free return equal to your mortgage rate. Strategies that borrow against your home to invest (sometimes called the "Smith manoeuvre") add risk and tax complexity; get independent advice before trying one.
Frequently asked questions
Is it better to prepay or invest?
Prepaying earns a guaranteed, tax-free "return" equal to your mortgage rate. Investing can earn more or less, with risk. Many people do both: keep an emergency fund, use registered accounts such as an RRSP or TFSA, and put some extra toward the mortgage.
Can I prepay a variable-rate mortgage?
Yes, within the privileges in your mortgage, and variable-rate prepayment penalties are usually three months' interest if you go over them. Check your contract for the exact terms.
Does a lump sum lower my payment?
Usually not automatically: most lenders keep the payment the same and shorten the amortization. Some let you re-amortize at renewal for a lower payment; ask your lender.
Model your own mortgage with our mortgage calculator, or ask Zara, Summitly's AI virtual agent.
