Mortgage prepayment privileges: the clause many Canadians never use

Short answer: Mortgage prepayment privileges in Canada let you pay extra toward a closed mortgage each year without a prepayment penalty ^[1]. They usually come in two forms: a lump-sum payment up to a set percentage of the original mortgage amount, and an increase to your regular payment by a set percentage ^[1][2]. The limits vary from lender to lender, and most lenders cap the amount per year ^[1].

It's one of the easiest clauses in a mortgage contract to sign and then forget about. Many borrowers renew year after year without checking how much they could prepay, or what that room is worth. This guide explains how each privilege works, what common limits mean in dollars, what extra payments can save and what to check before you sign or renew. If you're comparing renewal offers, our mortgage renewal page explains how we can help.

What is a mortgage prepayment privilege?

A prepayment privilege is the amount you can put toward your mortgage on top of your regular payments without paying a penalty ^[1]. It matters most on a closed mortgage, which charges a penalty if you pay more than your contract allows. An open mortgage lets you prepay any amount without a penalty, usually in exchange for a higher rate ^[1][3].

Your privileges are part of your mortgage contract. If your lender is federally regulated, such as a bank, your prepayment privileges and penalties must appear in an information box at the start of your mortgage agreement ^[1].

The two main types: lump sums and payment increases

1. Lump-sum prepayments. You make a one-time payment straight onto your principal, up to a limit that's usually a percentage of the original mortgage amount ^[1]. Depending on your contract, you may be able to make it at certain times during the term, on set dates or at the end of the term ^[2]. Some lenders set a minimum amount per lump sum.

2. Payment increases. You raise your regular payment by up to a set percentage, and the extra goes to principal ^[2]. FCAC notes that once you increase your payment, you normally can't lower it again until the end of the term ^[2], so pick an amount you're comfortable with.

A third, related option is an accelerated weekly or biweekly schedule. It works out to about one extra monthly payment per year ^[2], and it isn't usually counted against your prepayment privileges, though you should confirm that with your lender.

What "10+10" or "20+20" means in dollars

Privileges are often written as two numbers: the lump-sum limit and the payment-increase limit. FCAC's sample mortgage information box uses a "10+10" privilege: once a year, you can raise your monthly payment by 10% of the original payment and pay a lump sum of 10% of the original mortgage amount ^[4].

Illustrative only. Based on a $500,000 mortgage at 4.29% over 25 years (payment about $2,709 a month). Limits are examples of common structures, not offers; check your own contract for the exact limits and rules.

In our experience, closed mortgages in Canada commonly allow somewhere between 10% and 20% a year for each type, and some products allow less. Lower-rate "limited-feature" mortgages may have smaller privileges and higher penalties, so always look beyond the rate.

Use it or lose it. FCAC notes that, typically, you can't carry an unused prepayment amount from one year to the next ^[1]. Ask your lender whether your privilege year runs on the calendar year or your mortgage anniversary.

Want more flexibility at renewal? A licensed 8Twelve agent can compare prepayment privileges, penalty methods and rates across 65+ lenders, at no cost to you, OAC. Explore renewal options

How much can prepaying save? A worked example

Here's what extra payments could do on a $500,000 mortgage at 4.29% with a 25-year amortization (payment about $2,709 a month), assuming the same rate for the whole amortization:

Illustrative only, not an offer. Calculated with semi-annual compounding and a constant 4.29% rate; real rates will change at each renewal. Your results depend on your rate, balance and timing.

What it shows: the earlier and more consistently you prepay, the more interest you avoid, because every extra dollar stops collecting interest for the rest of the amortization. Even a 5% payment increase (about $135 a month here) would cut about two years and roughly $28,700 of interest in this illustration. Our mortgage payment calculator lets you test your own numbers.

Prepayment privileges and penalties

Going over your privilege is treated as a prepayment, and the lender can charge a penalty on the excess ^[1][3]. Your privileges also help if you ever need to break your mortgage:

• Prepay before you break. FCAC suggests using your full prepayment privileges, because any future penalty is based on a lower balance, and making a lump-sum prepayment before you break your mortgage ^[1]. Some lenders restrict prepayments close to the date you break your contract ^[1].
• The end of the term is penalty-free. At maturity, you can make a lump-sum prepayment without a penalty ^[1], which is why many people pay down a bonus or inheritance at renewal.
• Terms longer than five years. Under the Interest Act, once five years have passed on a mortgage with a longer term, a borrower who isn't a corporation can pay it off with no more than three months' interest as the penalty ^[5].

Before breaking a mortgage for a lower rate, run the full numbers. Our guide to whether to refinance now or wait walks through the trade-offs, and a blend-and-extend can sometimes avoid the penalty altogether.

What to compare at renewal

Your renewal is the one time you can change lenders, terms and features without a penalty. Beyond the rate, ask each lender:

1. How big are the lump-sum and payment-increase privileges, and are they based on the original or current balance?
2. When can I use them: any time, on payment dates, or once a year on the anniversary?
3. Is there a minimum lump-sum amount?
4. Does the privilege year follow the calendar or my anniversary, and does unused room carry forward?
5. How is the penalty calculated if I pay more or break the mortgage (three months' interest or interest rate differential)?
6. Can I port the mortgage if I move?

Federally regulated lenders have also committed, under a code of conduct, to give you prepayment information each year, including the dollar amount you can prepay without a charge and how your penalty would be calculated ^[6]. Our mortgage renewal checklist includes these questions in a side-by-side comparison, and our renewal negotiation scripts show how to ask for better terms.

When prepaying may not be your best move

Every extra dollar on your mortgage saves interest at your mortgage rate, but it isn't always the first priority:

• You carry higher-interest debt. Paying off credit cards or a car loan first usually saves more.
• You have no emergency fund. Money you've prepaid isn't easy to get back. Some lenders let you re-borrow amounts you prepaid, but that adds back to your balance and your interest costs ^[7].
• You'd lose valuable room elsewhere. Some people weigh prepaying against saving in a registered account. A financial or tax adviser can help you compare.
• You're close to renewal. If your lump sum is large, waiting until maturity lets you put down any amount penalty-free ^[1].

From our desk: Many clients never touch their prepayment privileges because they don't know the dates or limits. Put your privilege-year start date in your calendar, and when a tax refund or bonus arrives, check whether you've already used this year's room before you send the payment.

Prepayment privileges are one of the most useful features in a closed mortgage, and one of the most overlooked. Know your limits and dates, use them when extra money comes in, and compare them alongside the rate at every renewal.

Run the numbers: compare renewal payments with our mortgage renewal calculator, or read our complete mortgage renewal guide.

This article is for general information only and isn't financial, legal or tax advice. Rates, products and terms change without notice and are available on approved credit (OAC). The rate and terms you qualify for depend on your individual financial situation, including credit, income, property and loan-to-value. "Best rates" means the most suitable options available for your situation, not a guarantee of the lowest rate. Example rates and payments are for illustration only, as of October 2026, and are not an offer. 8Twelve Mortgage arranges mortgages through 65+ lenders and does not lend directly. Licensed across Canada — see our licences.

Example rates and savings are for illustration only, as of October 27, 2026, and are not an offer. Your actual rate and prepayment privileges depend on your lender, product and situation, OAC. Rules checked against FCAC and the Interest Act on October 27, 2026. 8Twelve does not lend or fund mortgages, including second or private mortgages; we arrange them with third-party lenders.