What this calculator answers
Every extra dollar you put on your mortgage goes straight to principal, so you stop paying interest on it for the rest of the mortgage. Small amounts add up: a modest extra on each payment, a lump sum from a tax refund or bonus, or one larger payment can take years off your mortgage.
This calculator compares your mortgage with and without the extra payments, and checks your plan against the prepayment limits in your contract. Going over those limits can trigger a prepayment penalty on a closed mortgage.
How the calculation works
- Both versions of the mortgage start with the same balance, rate, amortization and payment, with Canadian semi-annual compounding for fixed rates (monthly is available for variable).
- Each is simulated payment by payment, with interest rounded to the cent. Extra amounts reduce the balance on the payment they are made with.
- Interest saved is the total interest without extras minus the total with them. Time saved is the difference in payoff dates.
- The limit check compares the lump sums you make each year with the percentage you enter, and the extra on each payment with the payment increase you enter.
Assumptions and limits
- The rate you enter is an example and stays the same until the mortgage is paid off. In practice you renew every term.
- Prepayment privileges are lender policy and differ widely. Many closed mortgages allow lump sums of 10% to 20% of the original amount a year and a payment increase, but the exact rules are in your contract.
- Open mortgages and HELOCs usually allow unlimited prepayments; this check does not apply to them.
- Prepayments made at renewal are often unlimited and penalty-free with your current lender. That is not modelled here.
- Income tax and the return you could earn elsewhere (for example in a TFSA or RRSP) are not compared.
Common questions
Is it better to pay a lump sum or increase my payment?
For the same total dollars, the sooner the money goes in, the more it saves. A lump sum today beats the same amount spread over a year. Raising your payment is easier to stick with and adds up over time.
What happens if I prepay more than my lender allows?
On a closed mortgage, the amount over your privilege can be treated as breaking the mortgage early, and the lender can charge a prepayment penalty on it. Check your limits before sending a large payment.
Does prepaying lower my payment?
Usually not. Most lenders keep your payment the same and the mortgage ends sooner. Some will recalculate the payment at renewal, or on request, based on the lower balance.
Should I prepay or invest instead?
Prepaying earns a guaranteed return equal to your mortgage rate, tax-free. Investing might earn more or less. Many people do some of both, and keep an emergency fund first.
Sources
- Interest Act, section 6 (rules checked 2026-10-31)
- FCAC: prepayment penalties (rules checked 2026-10-31)