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Mortgage Prepayment Privileges: Paying Down Your Mortgage Sooner

Are you looking to be mortgage-free sooner? Who isn’t? One of the simplest ways to do that is with mortgage prepayment privileges. Let’s look at the most common prepayment privileges and how you can use them to pay off your mortgage sooner.


Lump Sum Payments

The lump-sum payment is probably the mortgage prepayment privilege that comes to mind first. It’s when you make an extra payment above and beyond your regular mortgage payments, usually based on a percentage of your original mortgage balance. For example, if your original mortgage balance was $500,000 and your lender lets you make a 10% lump sum payment, you can make lump-sum payments of up to $50,000 per year.

Most lenders let you pay between 10% and 20% of your original mortgage amount per year. That’s usually plenty for most Canadians when you can make those lump-sum payments that can really differ between lenders.

Some lenders are pretty strict and only let you make lump sum payments once a year on your mortgage anniversary date. Other lenders let you make lump sum payments at any time throughout the year. Ideally, you want a lender with the latter rather than the former.

Increase Your Mortgage Payments

The second common mortgage prepayment is the ability to increase your mortgage payment. Increasing your mortgage payment is as it sounds. It lets you pay above and beyond your regular mortgage payment. Most lenders let you increase your mortgage payment by between 10% and 20% per year.

For example, if your mortgage payment is $2,000 a month and you increase it by 10%, your new payment will be $2,200. You can then increase it the following year by 10% and so on.

Keep in mind that it might not be so easy to decrease once you increase your mortgage payment. If you’re unsure whether you want your mortgage payment to be higher, you might make a lump sum payment instead of increasing your payment.

Double Up

A variation on increasing your mortgage payment is to double it up. Double up your mortgage payment means paying double or twice your regular mortgage payment.

Using the same example from earlier, if your regular mortgage payment was $2,000 per month and you doubled it, you’d pay $4,000 a month.

Some lenders let you pay “up to” the double-up amount. In the same example, instead of paying $4,000, you could pay somewhere between above $2,100, up to $4,000 in a month you’re doubling up. (Assuming the minimum double-up payment is at least $100.)

Accelerated Payments

Finally, there are accelerated payments. A lot of people don’t consider this a prepayment privilege, but it is. With accelerated payments, you’re paying slightly higher mortgage payments. You’re paying the equivalent of 13 months of mortgage payments in only 12 months. That extra month of mortgage payments can help you pay off your mortgage years sooner and save thousands in interest.

The Bottom Line

Are you not sure which mortgage prepayment privilege is right for you? Speak to our mortgage experts. We’ll help you decide the right prepayment privileges to look for when choosing the ideal mortgage.

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