This mortgage calculator will help you see how much faster you can pay off your mortgage by making extra payments. You can see how much a one-time lump-sum payment or regular extra payments will help pay off your mortgage faster and save you thousands in interest.
How do extra mortgage payments work?
When you make an extra payment on your mortgage, the additional amount goes directly toward reducing your principal balance. Since interest is calculated on the outstanding principal, a lower balance means less interest accrues each month. This creates a compounding effect: every extra dollar paid today reduces the interest charged tomorrow, which means more of your future regular payments go toward principal rather than interest.
It is important to know the terms of your mortgage, as not all lenders allow extra mortgage payments without restrictions. Some mortgage terms will limit the frequency and size of the extra payments you are allowed to make. Always review your mortgage contract or contact your lender before making large additional payments.
Should you make extra payments on your mortgage?
Making additional payments on your mortgage — whether through a lump sum or increased regular payments — will help pay off your mortgage faster. The earlier in your mortgage term extra payments are made, the more money you will save in interest expense you would have otherwise incurred. It is important to consider the interest rate on your mortgage compared to potential investment returns and the interest rate on other outstanding debt to see if paying down your mortgage is the best use of your money.
How extra payments affect a $400,000 mortgage
The following table illustrates the impact of different extra payment amounts on a $400,000 mortgage at a 5.00% interest rate with a 25-year amortization and monthly payments. The base monthly payment is approximately $2,326.
| Extra Monthly Payment | Total Interest Saved | Years Shaved Off | New Payoff Time |
|---|---|---|---|
| $0 (base payment) | — | — | 25 years |
| $100/month | ~$27,000 | ~2.5 years | ~22.5 years |
| $200/month | ~$48,000 | ~4.5 years | ~20.5 years |
| $300/month | ~$64,000 | ~6 years | ~19 years |
| $500/month | ~$88,000 | ~8.5 years | ~16.5 years |
| $10,000 lump sum (year 1) | ~$22,000 | ~1.5 years | ~23.5 years |
| $20,000 lump sum (year 1) | ~$41,000 | ~3 years | ~22 years |
As shown in the table, even a modest $100 per month extra can save approximately $27,000 in interest over the life of the mortgage. Use our mortgage amortization calculator to see a detailed amortization schedule for your specific situation.
Types of extra mortgage payments in Canada
Canadian lenders generally allow three ways to make extra payments on your mortgage:
Lump-sum payments
A lump-sum payment is a one-time payment applied directly to your principal, often made when you receive a bonus, tax refund, or inheritance. Most lenders allow annual lump-sum prepayments of 10% to 20% of the original mortgage balance without penalty. For example, on a $400,000 mortgage with a 15% prepayment privilege, you could make a lump-sum payment of up to $60,000 per year without any penalty.
Increased regular payments
Increased regular payments allow you to raise your scheduled payment amount permanently. For example, adding an extra $200 to each monthly payment reduces your principal faster with every single payment. Most lenders permit increases of 10% to 20% above your original payment amount. This is one of the most effective strategies because it works automatically each month without requiring you to remember to make a separate payment.
Accelerated bi-weekly payments
The third option is switching to accelerated bi-weekly payments. Instead of making 12 monthly payments per year, you make 26 half-payments, which effectively equals 13 full monthly payments annually. This simple change can shave approximately 3 to 4 years off a standard 25-year amortization without significantly increasing your per-payment amount. Use our mortgage amortization calculator to see how different payment frequencies affect your total amortization period.
Comparing the three strategies
| Strategy | Best For | Typical Impact on $400K Mortgage |
|---|---|---|
| Lump-sum payment | Windfalls (bonus, inheritance, tax refund) | $20K lump sum in Year 1 saves ~$41K interest |
| Increased regular payments | Consistent extra cash flow | $200/month extra saves ~$48K interest |
| Accelerated bi-weekly | Set-it-and-forget-it savings | Saves ~$30K interest, cuts ~3.5 years |
Prepayment privileges explained
Most Canadian mortgages include prepayment privileges that define how much extra you can pay each year without incurring a penalty. Understanding these privileges is essential before making any additional payments.
Typical prepayment privilege terms
| Lender Type | Annual Lump-Sum Privilege | Payment Increase Privilege |
|---|---|---|
| Big 5 Banks | 10% – 20% of original balance | 10% – 20% of original payment |
| Credit Unions | 10% – 20% of original balance | 10% – 20% of original payment |
| Monoline Lenders | 15% – 20% of original balance | 15% – 20% of original payment |
| Restrictive Lenders | 5% – 10% of original balance | 5% – 10% of original payment |
If you exceed your prepayment privileges on a fixed-rate mortgage, you may face a penalty calculated as the greater of three months’ interest or the Interest Rate Differential (IRD). Variable-rate mortgages usually carry a penalty of three months’ interest only. Before making large extra payments, review your mortgage agreement or contact your lender to confirm your specific privileges. You can estimate potential penalties with our mortgage penalty calculator.
Maximizing your prepayment privileges
Many Canadians leave prepayment privileges unused each year. Here are strategies to maximize them:
- Increase your payment on your anniversary date. Most lenders allow you to increase your regular payment once per year. Set a reminder to review this each year.
- Make your lump-sum payment early in the year. A lump-sum payment made in January saves more interest than the same payment made in November, because you benefit from the reduced principal for more months.
- Align bonus payments with your privilege window. If your employer pays annual bonuses, time them with your mortgage privilege year to pay down principal penalty-free.
Extra payments vs. investing
One of the most common financial decisions Canadian homeowners face is whether to put extra money toward their mortgage or invest it. The answer depends on your mortgage rate, expected investment returns, tax situation, and risk tolerance.
Comparing scenarios
| Mortgage Rate | Investment Return (Before Tax) | Better Option |
|---|---|---|
| 3.00% | 6% – 8% in TFSA | Investing likely wins |
| 4.50% | 6% – 8% in TFSA | Investing has slight edge, but close |
| 5.50% | 6% – 8% in TFSA | Very close — consider both |
| 6.50% | 6% – 8% in TFSA | Mortgage paydown likely wins after risk |
| Any rate | 20%+ credit card debt | Pay off credit card first |
Paying down your mortgage provides a guaranteed, risk-free return equal to your mortgage interest rate. If your mortgage rate is 5%, every extra dollar paid saves you 5% in future interest with certainty.
Investing, on the other hand, has the potential for higher returns over the long term, particularly in tax-sheltered accounts like a TFSA or RRSP. If your expected investment return exceeds your mortgage rate after accounting for taxes and risk, investing may come out ahead. However, investment returns are not guaranteed, while mortgage interest savings are.
Many Canadians find a balanced approach works best: maximize prepayment privileges while also contributing to registered accounts. Use our investment calculator to model potential investment growth and compare it with the interest savings from our mortgage calculator.
Why early extra payments save more than later ones
The timing of extra payments matters significantly due to how mortgage amortization works. In the early years of a mortgage, the majority of each payment goes toward interest rather than principal. A $400,000 mortgage at 5% over 25 years has approximately $1,667 in interest in the first monthly payment — that is roughly 72% of the total payment going to interest.
An extra $10,000 payment in Year 1 saves approximately $22,000 in total interest over the life of the mortgage. The same $10,000 payment made in Year 15 saves only about $6,000 in interest. This is because the Year 1 payment reduces the principal that interest compounds on for the remaining 24 years, while the Year 15 payment only benefits the remaining 10 years of a much smaller balance.
The takeaway: if you have the ability to make extra payments, prioritize doing so as early in your mortgage as possible for maximum savings.
Related calculators
Explore these related tools to help you manage your mortgage and overall financial plan:
- Mortgage Calculator — Calculate your regular mortgage payments
- Mortgage Amortization Calculator — View a full amortization schedule with different payment frequencies
- Mortgage Penalty Calculator — Estimate penalties for breaking your mortgage early
- Mortgage Refinance Calculator — See if refinancing makes financial sense
- Mortgage Affordability Calculator — Determine how much home you can afford
- Investment Calculator — Compare potential investment returns
- TFSA Calculator — Model tax-free investment growth
- Compound Interest Calculator — Understand the power of compounding