How much can I prepay without a penalty?

On a closed mortgage, up to your annual prepayment privileges, often a lump sum of a set percentage of the original principal plus a payment increase of a similar percentage. Open mortgages allow unlimited prepayment.

Does prepayment lower my monthly payment?

Usually not directly. A lump-sum prepayment shortens your amortization while keeping the payment the same. Some lenders let you recast or reduce payments, but the default effect is paying off sooner.

Is prepaying better than investing the money?

It depends on your mortgage rate versus expected investment returns and your risk tolerance. Prepaying gives a guaranteed return equal to your mortgage rate, which is attractive when rates are high.

Mortgage Glossary

What is Prepayment?

A prepayment is any extra money you put toward your mortgage on top of your regular scheduled payments, applied directly to the principal. It can be a yearly lump sum or an increase to your regular payment amount. Prepayments reduce your balance, save interest, and shorten your amortization, within limits your lender sets called prepayment privileges.

Find my best mortgage Back to glossary

Quick answer

Also known as: mortgage prepayment, lump-sum payment

Key points

Extra money applied straight to your mortgage principal.
Can be a yearly lump sum or an increase to your regular payment.
Closed mortgages allow prepayment up to annual privilege limits.
Exceeding the limit on a closed mortgage usually triggers a penalty.
Open mortgages allow unlimited prepayment with no penalty.

Prepayment explained

Prepayment means paying down your mortgage faster than required. Because the extra amount goes straight to principal, it removes future interest the balance would have accumulated and trims time off your loan. Most closed mortgages allow prepayment within annual privileges, typically a lump sum of a set percentage of the original principal each year, plus the option to raise your regular payment by a similar percentage.

Exceeding those privileges on a closed mortgage usually triggers a prepayment penalty, so it pays to know your limits. Open mortgages allow unlimited prepayment with no penalty. Used within the rules, prepayments are one of the most effective ways to cut the lifetime cost of a mortgage without refinancing.

What a Prepayment is for

Prepayment privileges exist so borrowers can accelerate debt repayment when they have spare cash, without breaking the mortgage. They let you apply bonuses, tax refunds, or savings directly to principal, lowering interest costs and building equity sooner. They give flexibility within a closed term that would otherwise lock your payment in place.

How it can help you

Making prepayments saves real money: every dollar against principal cancels the future interest on that dollar, so even modest yearly lump sums can shave years off a 25-year mortgage. It is one of the few ways to reduce a closed mortgage's cost without penalty. Prepayment terms vary widely between lenders, so the size of your privileges matters; Lenderoo lets you compare prepayment privileges across 40+ lenders for free so you can pick a mortgage that lets you pay it down on your terms.

When it comes up

A borrower with a $300,000 mortgage and a 15% annual prepayment privilege receives a $10,000 work bonus. They apply the full amount as a lump-sum prepayment, well under their limit, with no penalty. The balance drops immediately, future interest falls, and their amortization shortens, all without changing their regular payment.

Example: the impact of a yearly lump sum

You hold a $300,000 mortgage at roughly 5% over 25 years. Each year you make a $5,000 lump-sum prepayment, comfortably within a typical 15% annual privilege.

Those extra payments go entirely to principal, so the balance falls faster and the interest charged each year shrinks. Over the life of the loan, consistent prepayments like this can save tens of thousands of dollars in interest and shorten the amortization by several years, without ever triggering a penalty.

Have a question about prepayment?

Lenderoo shops 40+ lenders for free and matches you with a mortgage professional who explains every term — and finds your best rate.

Get pre-approved free Talk to an expert

Questions & answers

Prepayment: frequently asked questions

Common questions Canadians ask about prepayment.

Keep learning

Related mortgage terms

Prepayment Penalty

Fee charged for paying off a mortgage early.

Read definition

Principal

The original amount borrowed, excluding interest.

Read definition

Closed Mortgage

A mortgage with limited prepayment options that charges a penalty if paid off or broken early.

Read definition

Open Mortgage

A mortgage that can be paid off at any time without penalty.

Read definition

Amortization

The process of paying off a mortgage over time through regular blended payments of principal and interest.

Read definition

Back to full glossary

Understand your mortgage with confidence

Lenderoo shops 40+ lenders for free and pairs you with a mortgage professional who keeps the jargon simple — and gets you a great rate.

Find my best mortgage Explore the glossary

Mortgage Glossary

What is Prepayment?

Find my best mortgage Back to glossary

Quick answer

Also known as: mortgage prepayment, lump-sum payment

Key points

Extra money applied straight to your mortgage principal.
Can be a yearly lump sum or an increase to your regular payment.
Closed mortgages allow prepayment up to annual privilege limits.
Exceeding the limit on a closed mortgage usually triggers a penalty.
Open mortgages allow unlimited prepayment with no penalty.

Prepayment explained

What a Prepayment is for

How it can help you

When it comes up

Example: the impact of a yearly lump sum

You hold a $300,000 mortgage at roughly 5% over 25 years. Each year you make a $5,000 lump-sum prepayment, comfortably within a typical 15% annual privilege.

Have a question about prepayment?

Lenderoo shops 40+ lenders for free and matches you with a mortgage professional who explains every term — and finds your best rate.

Get pre-approved free Talk to an expert

Questions & answers

Prepayment: frequently asked questions

Common questions Canadians ask about prepayment.

Keep learning

Back to full glossary

Understand your mortgage with confidence

Lenderoo shops 40+ lenders for free and pairs you with a mortgage professional who keeps the jargon simple — and gets you a great rate.

Find my best mortgage Explore the glossary