Posted On Sep 21, 2025

When you're shopping for a mortgage, 99% of the focus is on the interest rate. It’s the big, bold number that everyone compares. But buried in the fine print of your mortgage documents is a feature that can be far more powerful than a slightly lower rate: your prepayment privileges.

Understanding and using these privileges is the single most effective strategy to pay off your mortgage years ahead of schedule, saving you an astonishing amount in interest. Many people ignore them, assuming they’re too complex or that small extra payments won’t make a difference. They couldn't be more wrong.

 

Let's demystify this powerful tool.

Two Main Types of Prepayment Privileges

Most mortgages in Canada come with two ways to pay down your principal faster:

  1. Lump-Sum Payments: This allows you to make an extra payment directly against your principal balance each year. This is often expressed as a percentage of your original mortgage amount (e.g., "15% per year"). You can pay this in one go or break it up into smaller payments throughout the year.

  2. Payment Increase: This allows you to increase the amount of your regular mortgage payment (e.g., bi-weekly or monthly). A common privilege is a "15+15" or "20+20" plan, meaning you can make lump-sum payments up to 20% of the original mortgage and/or increase your regular payment by up to 20% each year.

The Jaw-Dropping Impact of a Small Change

Let's look at a real-world example. Imagine you have a $700,000 mortgage at 4.75% with a 25-year amortization. Your monthly payment is $3,936.

Now, let's say you decide to use your prepayment privileges to add just $300 extra per month to your payment. It's the cost of a few family dinners out.

Here's what happens:

  • Mortgage Paid Off: You would pay off your mortgage in 21 years and 3 months instead of 25 years.

  • You're mortgage-free 3 years and 9 months sooner!

  • Total Interest Saved: You would save an incredible $73,285 in interest payments over the life of the mortgage.

 

Think about that. A modest $300 a month translates into over $73,000 in your pocket. That's the power of compounding working for you, not against you.

Why This Matters More Than Just the Rate

This is why my advice is always to look "Beyond the Rate." A mortgage from a lender offering fantastic prepayment privileges might be a much better financial tool for you in the long run than a slightly lower rate from a more restrictive, no-frills lender. The flexibility to pay down your debt on your own terms is immensely valuable.

 

Take a look at your latest mortgage statement. Do you know what your prepayment privileges are? If not, find out. And if you're shopping for a new mortgage or a renewal, make sure this is a key part of the conversation. It’s one of the most important decisions you’ll make for your long-term financial health.

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