Mortgage prepayment calculator for Canada

This mortgage prepayment calculator runs your mortgage twice, once as it stands and once with the extra you plan to pay, and shows the difference in interest and in years. It handles yearly or one-time lump sums, a permanent increase to every payment (as a percentage or in dollars), all six payment frequencies Canadian lenders commonly offer and semi-annual compounding for fixed rates. Because every lender sets its own prepayment privileges, the limits are inputs: type in the figures from your contract and the calculator flags any plan that goes over them.

How do you use this mortgage prepayment calculator?

1. Enter the mortgage as it is today: the balance on your latest statement, the rate in your contract, the years left on the amortization and how often you pay. Use the remaining amortization, not the original one.
2. Describe the prepayment plan. Choose a lump sum every year, a one-time lump sum or none, and set when the (first) one is paid: 0 means today, 1 means right after the last payment of year 1. Then choose whether to raise every payment by a percentage or a dollar amount.
3. Open “Your prepayment privileges” and type in your contract’s yearly lump-sum limit, the amount it is based on (often the original principal) and the payment-increase limit. The defaults there are placeholders, not any lender’s terms.
4. Read the result from the top down: the summary sentence, then the four cards (interest saved, time saved, total prepaid and what you would owe at renewal), then the strategy table, the timing table, the privilege check and the year-by-year schedule, which can be downloaded as a CSV file.

Worked example: what do yearly lump sums and a bigger payment save?

Take a hypothetical fixed-rate mortgage with a balance of $450,000 at 4.6%, 23 years of amortization left, monthly payments and 4 years left in the term. The owner plans a lump sum of $10,000 right after the last payment of every year, starting in year 1, and adds $200 to every monthly payment. The contract (in this example) allows lump sums of 15% of the $500,000 originally borrowed and a payment increase of up to 15%.

The regular monthly payment works out to $2,634.17. With the plan, the calculator shows:

• Interest saved: about $116,093.
• Time saved: the mortgage ends after 14 years instead of 23, so 9 years sooner.
• Total prepaid: $168,398, which is about $0.69 of interest saved per dollar prepaid over the life of the mortgage.
• Balance at renewal: after the remaining 4-year term, about $347,984 owing instead of $401,372, which means a smaller mortgage to renew at whatever rate is on offer then.

Both parts of the plan sit well inside the example privileges: the $10,000 lump sum is under the $75,000 yearly limit, and the $200 increase is a 7.6% increase, under the $395.13 a payment allowed.

Lump sum, bigger payment or accelerated bi-weekly: which saves more?

The calculator’s strategy table answers this for any mortgage. For the example above it looks like this:

How to read this table: every row starts from the same balance, rate and amortization, and only the prepayment changes. The two parts of the plan save less together than their sum ($137,912 separately against $116,093 combined) because each one shortens the mortgage and leaves the other fewer years to work on. The accelerated bi-weekly row adds the equivalent of one monthly payment a year, a little more than the $200-a-month increase, and saves a little more for that reason.

Why does the timing of a prepayment matter so much?

A prepaid dollar saves interest for every remaining year of the mortgage, so the same amount is worth less the later it arrives. The calculator’s timing table takes one lump sum and moves it through the amortization. For the example mortgage and a single $10,000 payment:

How to read this table: there are no other prepayments in these rows. Early in the mortgage, a single lump sum saves more interest than its own size; near the end it saves only a fraction of it. That pattern follows from how amortization works (the guide to mortgage amortization walks through why early payments are mostly interest).

What are prepayment privileges, and what happens if you go over them?

Prepayment privileges are the extra payments a closed mortgage allows each year without a charge. They are written into each lender’s contract and differ by lender and by product, which is why this calculator never assumes a figure. Look for these terms in your mortgage documents:

How to read this table: it is a checklist, not a list of any lender’s terms. Enter the figures you find in the privileges section of the calculator, and the privilege check table in the result marks each part of the plan as within or over the limit.

Prepaying above the privileges, or breaking a closed mortgage early, triggers a prepayment penalty (also called a prepayment charge). The Financial Consumer Agency of Canada’s page on prepayment penalties explains that the penalty is usually the higher of three months’ interest or an interest rate differential, and that the calculation depends on the contract. This page measures what prepaying saves; to estimate what prepaying above your privileges would cost, use the mortgage penalty calculator and ask the lender for the exact figure before sending any money.

How does the maths work?

The calculator follows the same rules as the mortgage payment calculator, then adds the prepayments.

• Rate per payment. Canadian fixed-rate mortgages compound semi-annually, so the annual rate is first turned into an effective rate per payment. For the example, 4.6% compounded twice a year is 0.3797% a month, or 4.65% a year as an effective annual rate.
• Regular payment. The standard annuity formula gives the payment that clears the balance over the remaining amortization. That payment is then held fixed.
• Each payment. Interest is the balance times the rate per payment; the rest of the payment, plus any increase, reduces the balance.
• Lump sums. After the last payment of a year in which a lump sum is due, the lump sum comes straight off the balance (capped at whatever is left).
• The answer. The run with prepayments is compared with the run without them: interest saved, payments no longer needed, and the balance at the end of the term.

Monthly compounding, which some variable-rate mortgages use, can be switched on in the advanced section. At the same quoted rate it charges slightly more interest, so prepayments save slightly more.

Prepay the mortgage or invest the money: how do they compare?

Every prepaid dollar earns exactly the mortgage rate, with no risk: it is interest that will never be charged. That makes the mortgage rate (the effective annual rate, in the example 4.65%) the benchmark for the alternatives. The TFSA calculator and the RRSP calculator can project the same money invested instead, and the TFSA vs RRSP guide covers which account suits which situation.

How to read this table: it compares features, not outcomes. A realistic comparison uses the after-tax return the reader expects against the mortgage rate, and takes into account how hard it would be to reach the money again. Borrowing equity back is not automatic: refinancing or adding a home equity line of credit at a federally regulated lender means passing the mortgage stress test again, and the HELOC calculator shows what that borrowing would cost.

What mistakes do people make with mortgage prepayments?

• Going over the privileges. A lump sum a little above the yearly allowance on a closed mortgage can cost more in penalty than it saves in interest. Check the privilege table in the result first.
• Missing the privilege year. If the allowance resets on the mortgage anniversary rather than on January 1, a lump sum paid a week before the anniversary uses the old year’s room, and one paid a week after uses the new year’s.
• Emptying the emergency fund. Money prepaid is hard to get back quickly. The emergency fund calculator helps size a cash cushion before any extra goes to the mortgage.
• Ignoring more expensive debt. A dollar of credit card or car-loan debt at a higher rate costs more than a dollar of mortgage; paying those first saves more per dollar.
• Expecting a lower payment. A lump sum shortens the mortgage; it usually does not reduce the regular payment until renewal.
• Using a US calculator. US tools usually compound monthly, which overstates interest on a Canadian fixed-rate mortgage.

When is it worth talking to the lender or a professional?

Talk to the lender before any payment that might exceed your privileges, before paying a lump sum close to the anniversary date, and whenever you are unsure how a prepayment will be applied. A mortgage broker can compare terms at renewal, when a new contract with different privileges is an option; the mortgage renewal calculator shows what the payment becomes on the smaller balance. A fee-only financial planner can weigh prepaying against investing, RRSP refunds and other debts together. This calculator is an educational estimate, not financial advice.