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How much can you prepay — and what is it worth?
What a lump sum or a bigger payment saves you, and the part almost nothing else models: how much your privileges actually allow, and whether your term gives you two budgets or one.
The amount you first borrowed on your original term. After a renewal it is the balance your current term opened at — a renewal is a new contract, re-advanced at whatever was still owing.
Prepayment privileges
The lump-sum and payment-increase privileges are separate, each usable in full (typical Canadian lenders).
What you plan to pay
Your room, and what the plan does
What your term allows
- Regular payment
- $2,767.36
- Lump-sum privilege (% per year)
- $75,000.00
About $75,000.00 a year — the percentage applies to the balance this term started at, not to today's.
About $415.10 more on each payment — up to $4,981.20 a year if you use it every time.
Your plan fits inside this year's room.
What your plan is worth
- Interest saved
- $0.00
- Paid off sooner
- 0 months
- Interest still paid
- $330,210.58
Two questions, and only one of them gets asked
Every prepayment calculator answers what a payment saves you. Almost none answer whether your lender would take it. The privileges in your commitment letter are a yearly allowance that resets on your mortgage anniversary and does not carry forward, and the words that describe them differ between lenders in ways that change the answer by thousands.
- The allowance resets, and does not accumulate
- Your privilege year runs from anniversary to anniversary, not from January. Room you do not use is gone at the end of it — saving two years of allowance to pay in one go leaves the first year wasted and the second one over its cap. That is also why paying early in the privilege year is worth slightly more than paying late: the same dollars spend longer against the balance.
- A payment increase is a prepayment, and it is usually permanent
- Raising your payment is not a transfer you can reverse next month. Most agreements let you increase once per privilege year and hold the higher payment for the rest of the term; a few let you go back down. Whether yours does is worth reading before you commit, because the money is the same either way and the flexibility is not.
- None of this is a penalty calculation
- Prepaying inside your privileges costs nothing. Paying more than they allow, or paying the mortgage out entirely before maturity, is a different transaction with a different charge — the break penalty, which has its own calculator on this site and its own arithmetic.
What a budget you could actually keep is worth
A $500,000.00 mortgage at 4.50% over 25 years, paying $2,767.36. These are budgets a household might commit rather than the maximum the privileges allow — for most borrowers the cap is nowhere near the binding constraint, and a table built on the maximum reports savings nobody will ever see. Each budget is shown twice: paid once a year on the anniversary, and the same money spread across every payment.
| Committed each year | How it is paid | Interest saved | Paid off sooner |
|---|---|---|---|
| $3,000.00 | One lump sum a year | $49,999.19 | 41 months |
| $3,000.00 | Spread over every payment | $52,182.78 | 43 months |
| $6,000.00 | One lump sum a year | $85,962.25 | 73 months |
| $6,000.00 | Spread over every payment | $89,584.09 | 74 months |
| $12,000.00 | One lump sum a year | $134,666.26 | 114 months |
| $12,000.00 | Spread over every payment | $139,985.37 | 117 months |
The spread version wins every row, which is the reverse of the usual advice. Nothing clever is happening — the same money simply arrives across the year instead of once on the anniversary, so it starts working sooner. The gap is a few percent, which is the other half of the finding: the choice between the two is not worth agonizing over. Whether your term allows both at once is.
Three rules that change the answer, and are rarely stated
All three come from the same place — the wording of the privilege clause — and each one is the difference between a prepayment your lender accepts and one they charge you for. The figures below are the example mortgage above.
- Two budgets, or one shared cap
- On a standard term the lump-sum and payment-increase privileges are independent: using one takes nothing from the other, and the full $75,000.00 lump-sum allowance is still there in the autumn. On a combined cap they share a single yearly budget. Running an increase of $415.10 a payment consumed $4,566.10 of the $75,000.00 cap in the first privilege year alone, leaving $70,433.90 for a lump sum. Two contracts, the same two percentages quoted to the borrower, and a difference nobody mentions until the money is refused.
- After a renewal, "the original principal" means something else
- Lenders quote the privilege against the original principal amount. A renewal is a new contract, re-advanced at whatever was still owing, so from the second term onward that phrase names the balance your current term opened at rather than the sum you borrowed years earlier. On this mortgage the first term's allowance is $75,000.00 — on $500,000.00 — and a term renewed at $410,000.00 allows $61,500.00. Planning against the older figure is planning a prepayment that will be charged for.
- The percentage lands on the payment you do not make
- An accelerated payment is 13/12 of its ordinary counterpart — that is how it fits roughly thirteen monthly payments into a year — and lenders divide that back out before applying the privilege. On a $2,767.36 accelerated payment the percentage is taken on $2,554.49, giving $383.17 rather than the $415.10 a calculator gets by applying it to the payment you actually make. About 8% too generous, in the direction that has you plan a prepayment your lender will not take.
How this is worked out
- Your own commitment letter or renewal agreement, which is the only place your privileges are actually defined. The defaults here are typical Canadian terms and are not a quote.
- Payments and interest use Canadian semi-annual compounding, the convention for fixed and variable mortgages alike.
- The privilege year is measured from the term's anniversary rather than from January, matching lenders that measure it per mortgage year.
- Prepaying inside your privileges is free. Exceeding them, or discharging the mortgage before maturity, is a penalty calculation and is not modelled here.
Method last reviewed 25 August 2026.
Written by Hermann Gael Nang-SongFounder of LoonieLodge Inc., and author of the Canadian mortgage engine this site runs on.
Educational and informational only — not licensed mortgage, financial, legal or tax advice. Every lender's contract governs its own mortgage, and the figures here are estimates from stated assumptions rather than quotes. Confirm anything you intend to act on with your lender and a licensed professional.
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