TL;DR
These privileges can materially reduce total interest, but overusing or mis-timing payments can create avoidable penalty risk.
What this FAQ answers
Most borrowers ask, “How much extra can I pay?” The stronger question is, “How do I use prepayment room to lower interest while preserving flexibility and avoiding penalties?”
This page merges core definitions and an execution playbook so you can make prepayments with control instead of guesswork.
What is a mortgage prepayment privilege?
FCAC defines prepayment privileges as extra amounts you can put toward your mortgage above regular payments without penalty, subject to contract terms.
Privileges usually include annual lump-sum room, payment-increase room, or lender-specific features such as double-up payments.
How privileges are usually structured in Canada
- Annual lump-sum room: many closed mortgages allow extra principal payments up to a set annual limit.
- Payment-increase room: many products allow regular-payment increases to accelerate principal reduction.
- Feature combinations: some contracts include both, while some lower-rate products offer tighter flexibility.
Public lender guidance often references 10% to 20% annual room, but your own signed terms are the only enforceable rule set.
7-step prepayment privilege playbook
- Document your exact annual lump-sum and payment-increase limits in writing.
- Schedule extra payments after high-cash-flow months instead of random transfers.
- Use privilege room gradually and track cumulative usage through the year.
- Coordinate larger prepayments with renewal timing (about 120 days out).
- Re-check penalty exposure before any refinance or switch decision.
- Protect a cash reserve so prepayments do not weaken resilience.
- Review plan performance quarterly and adjust with current rates and goals.
Rate vs flexibility: quick comparison lens
| Offer type | Rate profile | Prepayment flexibility | Main borrower risk |
|---|---|---|---|
| Lower-rate restricted offer | Lower day-one rate | Can be tighter on privilege usage or exit rules | Penalty surprises if assumptions are wrong |
| Balanced full-feature offer | Moderate rate | Often stronger prepayment and portability options | Slightly higher initial payment in some cases |
| High-flexibility structure | Typically highest day-one pricing | Highest adaptation capacity for plan changes | Overpaying for flexibility you may not use |
Decision trap to avoid
Overconfidence bias
assuming every extra payment is penalty-free because the product has “prepayment privileges.”
Pragmatic correction
validate remaining privilege room before each large payment and keep a running annual tally.
Sources
Best next step
- Review mortgage penalty calculators before large extra payments.
- Use renewal negotiation guidance with prepayment strategy in hand.
- Run penalty scenarios alongside your prepayment plan.
- Start your pre-approval plan with contract-limit checks complete.
