Mortgage Prepayment Calculator

What this calculator does

It runs your actual balance twice — once on your existing schedule, once with everything you have entered — and compares them payment by payment. A one-time lump sum, a top-up on each anniversary and extra on every regular payment can all be modelled together or on their own.

It also does two things most lender calculators skip. It checks your prepayments against the annual privilege your lender measures against your *original* principal, and prices the charge if you go over. And it shows what the same money is worth applied at different times, because that gap is larger than most people expect and it points in a direction that is easy to get backwards.

• Interest saved and years cut, against your existing schedule
• How much money the plan actually puts in, alongside what it saves
• The same dollars compared as a lump now, spread over a year, or delayed five years
• Your privilege limit, and the charge if a recurring top-up breaches it every year
• Prepaying against investing, with the account type accounted for

Earlier beats bigger — and it is easy to get this backwards

A dollar prepaid stops earning the lender interest for every remaining period of your amortization. Applied later, it stops earning interest for fewer periods. So at the same rate, money applied earlier always saves more. There is no version of this where waiting wins.

That sounds obvious until it collides with a common piece of advice: that a permanent increase to your regular payment beats a lump sum of similar value. On the numbers, a $200 monthly increase does save more than a $20,000 lump — but it is not similar value. Over a 22-year amortization that increase puts in more than $50,000. Compare genuinely equal amounts and the lump wins: the same $20,000 saves about $31,465 applied today against about $30,284 spread evenly across the following year.

Both facts are useful and they are not in conflict. A larger regular payment saves more because it is more money, which is a perfectly good reason to do it. But per dollar committed, sooner is better — so if you have a lump sum sitting in an account, the argument for waiting to make it bigger is weaker than it looks.

• A prepaid dollar stops accruing interest for the rest of the amortization
• So the same money always saves more the earlier it goes in
• A payment increase saves more than a lump only because it is more money
• Per dollar committed, the lump sum applied today is the better buy
• The page compares equal amounts so you can see it rather than take it on trust

The privilege is measured against your original principal

Almost every Canadian lender allows a penalty-free prepayment each year of between 10% and 20% — and the base is the mortgage you originally took out, not the balance you have now. That is good news, because the allowance does not shrink as you pay down. It is also the single most misread term in a mortgage contract, usually in the direction of people assuming they have less room than they do.

Go over it and the excess is normally charged three months' interest, though some lenders apply an interest rate differential instead, which costs considerably more. The page prices the standard method and says so.

The part worth watching is a recurring top-up. If your annual contribution is above the limit, it is above the limit every year you make it — so the charge repeats for as long as the mortgage lasts. The calculator counts that over the actual payoff length, which the prepayments themselves shorten.

• The limit is a share of the ORIGINAL principal, not your current balance
• It ranges from 10% to 20% depending on the lender — check your documents
• The excess is usually charged three months' interest on the amount over
• A recurring top-up over the limit is charged every year it is made
• Some lenders allow lump sums only on the anniversary date

Prepaying against investing, honestly

A prepayment is a guaranteed return equal to your mortgage rate, and it is never taxed — you are not receiving income, you are avoiding an expense. That is a genuinely unusual combination, and it is why prepaying competes well against investments that look like they should beat it.

The comparison depends heavily on where the alternative money would go. In a taxable account, a return has to clear your mortgage rate *before tax* to come out ahead: at a 30% marginal rate a 4.49% mortgage needs about 6.41% pre-tax to match it. In a TFSA or RRSP the return is not taxed either, so it competes with your mortgage rate directly — and a 6% sheltered return beats a 4.49% mortgage comfortably.

That distinction reverses the answer on perfectly ordinary numbers, which is why this page asks rather than assuming. What no calculator can weigh for you is that one side is certain and the other is not. A guaranteed 4.49% and a hoped-for 6% are not the same kind of thing, and how much that matters is a judgement about your own circumstances rather than arithmetic.

• Prepaying returns your mortgage rate, guaranteed and untaxed
• A taxable investment must beat it before tax, not after
• A TFSA or RRSP return is untaxed too, so it competes directly
• That difference alone can reverse the answer
• A certain return and an uncertain one are not equivalent, whatever the numbers say

What the savings figure does not tell you

Interest saved is a real number and a satisfying one, but on its own it flatters any plan that simply involves more money. A plan that saves $97,000 by putting in $132,000 is worth understanding as both of those things at once, which is why the page shows the second figure next to the first.

It is also worth remembering what prepaying costs you in flexibility. Money put into a mortgage is difficult to get back out — a refinance or a HELOC, at whatever rates and qualifying rules apply then. An emergency fund held in cash earns less and is worth more. Prepay from surplus rather than from the buffer you would need if something went wrong.

• Read interest saved alongside how much money the plan puts in
• Per dollar committed is the fairer comparison between two plans
• Prepaid money is hard to access again without borrowing it back
• Keep the emergency fund before accelerating the mortgage
• A plan you can sustain beats a larger one you abandon

Using your results well

If you have money available now, use it now — the delay comparison on this page shows what a five-year wait costs on your own numbers, and it is usually a larger figure than people expect.

Check the privilege before you pay, not after. The limit is knowable from your documents, and lenders enforce it. If your plan is close to the line, ask whether your lender prorates it in the first year and whether lump sums are restricted to the anniversary date, since both vary.

And confirm the specifics rather than relying on any calculator, this one included. Whether a payment increase resets your privilege, how a partial year is treated, and which formula applies to an over-limit payment are all contract terms that differ between lenders.

• Apply money you already have sooner rather than saving it into a larger lump
• Confirm your privilege limit and its timing rules before making a large payment
• Ask which formula applies to an over-limit prepayment — the two differ a lot
• Compare plans per dollar committed, not by headline savings alone
• Keep your emergency fund intact first