Mortgage Prepayment Privileges in Canada: Lump Sums Explained

Most closed mortgages come with a prepayment privilege: the right to pay extra toward your principal each year without a penalty. It’s one of the most valuable features in your mortgage contract, and one of the least used. The exact amount and rules vary a lot from lender to lender, and the details are usually buried in the fine print.

This guide explains the common types of prepayment privileges, how to find yours, and how much of a difference using them consistently can make.

The three common types

Typical prepayment privileges

Lump-sum payment

• Pay a set percentage of the original amount each year, often 10% to 20%
• Some lenders allow it anytime; others only on your anniversary date
• Usually a minimum of around $100 per payment

Payment increase

• Raise your regular payment, often by 10% to 20%, sometimes up to 100%
• Every extra dollar goes to principal
• Some lenders allow you to reduce it back later

Double-up payments

• Make an extra payment on any payment date
• Offered by some lenders instead of or alongside increases
• Counts toward your annual limit

Examples of privilege packages

Package	Annual lump sum	Payment increase
10/10	Up to 10% of original principal	Up to 10%
15/15	Up to 15%	Up to 15%
20/20	Up to 20%	Up to 20%
Open mortgage	Unlimited	Unlimited

How much can it save?

Here’s a $500,000 mortgage at an illustrative 4.59%, amortized over 25 years, with a regular payment of about $2,792 a month. Compare paying only the regular amount with adding an extra $5,000 or $10,000 each year:

Mortgage balance over time

Regular payments only+$5,000 a year+$10,000 a year

Based on the example above.

The reason it works so well: every prepayment goes straight to principal, and the interest you would have paid on that principal disappears for every remaining year of the mortgage. Early prepayments save the most because they have the longest to compound.

How to find your privilege

Where to look

1. Your mortgage commitment or contract

   Look for a section called “Prepayment privileges” or “Prepayment options.”

2. Your lender’s online banking

   Many lenders show your remaining prepayment room for the year.

3. Your annual statement

   Often lists the privilege and the anniversary date.

4. Call your lender

   Ask: how much can I prepay this year, when can I do it, and when does the room reset?

Making it a habit

• Use windfalls: tax refunds, bonuses and gifts are natural candidates for a lump sum.
• Round up your payment: small increases add up over decades and don’t feel like much month to month.
• Increase after raises: bump your payment by part of each pay increase.
• Keep your emergency fund first: money in your mortgage is hard to get back out quickly.

Examples use illustrative rates and Canadian semi-annual compounding, and are rounded. They are not rate quotes or advice. Last reviewed September 2026.