Mortgage prepayment privileges in Canada: how to actually use them

By Canadian Rates editorial team · Last reviewed May 1, 2026

Closed mortgages in Canada come with prepayment privileges — the right to pay down extra principal each year without triggering a penalty. They’re underused because borrowers don’t read the fine print and because the savings are silent (interest you never pay rather than a credit you see). But for an owner who can spare the cash, they’re the highest-return debt payment in personal finance.

The two levers

Almost every Canadian closed mortgage gives you two prepayment options each year:

1. Lump sum: pay an additional X% of the original principal, anytime, in cash. Common offerings:

   • Big 6: typically 15/15 to 20/20 — BMO and CIBC are 20/20 by default; Scotia is 15/15; RBC and TD are usually 10/10 with 15/15 available on some products.
   • Monolines: typically 15/15 or 20/20.
   • Some credit unions: 20/20.

2. Payment increase: raise your regular monthly/biweekly payment by up to X% of the original payment. The increase goes 100% to principal because your interest is calculated on the new (lower) balance each period. Once raised, you usually can’t lower it again until renewal.

Both privileges typically reset annually on your mortgage anniversary (or in some cases, calendar year). Unused privileges generally do not roll over.

Why this is the highest-return move you can make

A lump-sum payment goes 100% to principal. On a 4% mortgage, paying $10,000 down today saves you $10,000 × 4% × yearsRemaining / 2 in interest at semi-annual compounding — typically $2,000 in saved interest over a five-year term per $10,000 paid. Tax-free, risk-free, immediate. Few investment vehicles can match it.

The payment increase is even more powerful because it compounds. Bumping a $2,500 monthly payment to $2,750 (10% increase) on a $500,000 mortgage at 4% over a 25-year amortization shaves roughly 5 years off the life of the loan and saves ~$60,000 in interest over the full amortization.

Tactical rules

• Time the lump sum before the anniversary, not on it. Some lenders pro-rate; making a lump-sum prepayment with one day left in your privilege year and another in week one of the next year is two years’ worth of allowance. Confirm with your lender.
• Apply lump sums when your balance is highest — early in the amortization, before significant principal has been paid down. Each dollar paid early avoids more compounded interest.
• Use a tax refund or bonus, not your emergency fund. Prepayments are not retrievable; treat them as locked away once paid.
• Use the payment increase even if you can’t max it. A 5% bump is half as good as a 10% bump and twice as good as nothing.

What to check in your contract

Before you assume your privileges, find them in your mortgage commitment. The relevant clauses:

• “Annual prepayment privilege” or “prepayment options” — names the % and frequency.
• Whether the lump sum is based on the original principal (most common) or current balance.
• Whether multiple lump sums per year are allowed, or only one.
• Whether the payment increase is reversible mid-term (usually no, only at renewal).

Lenders rarely volunteer this information at signing. Ask explicitly.

When prepayment privileges matter most

If you’re considering breaking your mortgage to refinance into a lower rate, first try maxing out your prepayment privileges. The penalty math often becomes much friendlier when you’ve already shaved 15–20% off the balance. If the goal is just paying it off faster, the 15/15 or 20/20 mechanics are the right tool — no break, no penalty, no rate change.