The short answer
The same dollars save more interest the earlier they reach your balance. Raising each monthly payment gets money to principal a little sooner than waiting to send one lump sum at year-end, so it usually wins by a small margin. The bigger factors are how much you prepay in total and whether you keep doing it every year.
Worked example: $5,000 a year on $500,000 at 5%
We used a $500,000 mortgage at 5% over 25 years with a monthly payment of $2,908.02, then compared ways of prepaying. Lump sums are applied right after the twelfth payment each year. Every figure uses Canadian semi-annual compounding and one fixed rate for the whole amortization.
| Plan | Extra per year | Total interest | Interest saved | Paid off in |
|---|---|---|---|---|
| No extra payments | $0 | $372,406.00 | – | 25 years |
| +$416.67 a month | $5,000 | $282,088.09 | $90,317.91 | 19 years, 8 months |
| $5,000 lump sum each year-end | $5,000 | $285,813.95 | $86,592.05 | 19 years, 10 months |
| +$290.80 a month (a 10% increase) | $3,489.60 | $304,099.04 | $68,306.96 | 21 years |
| $10,000 lump sum each year-end | $10,000 | $233,798.61 | $138,607.39 | 16 years, 6 months |
Spreading $5,000 across monthly payments saves about $90,318. Sending it as one year-end lump sum saves about $86,592. The difference is roughly $3,726 over 20 years. That is real money, but it is small next to the roughly $86,000 to $90,000 that either habit saves compared with doing nothing.
When a lump sum makes more sense
- Irregular income. Bonuses, commissions, tax refunds and gifts arrive in chunks. A lump sum lets you prepay without committing to a higher payment you might struggle with later.
- Flexibility. FCAC notes that once you increase your payment, you normally can’t lower it until the end of the term. A lump sum carries no ongoing promise.
- Before breaking a mortgage. FCAC suggests using your lump-sum privilege before you break a mortgage so the penalty is based on a lower balance.
When higher payments make more sense
- Steady pay. A small automatic increase is easy to forget about, which is what makes it stick.
- Discipline. Money that never lands in your chequing account is harder to spend on something else.
- Earlier is better. As the table shows, monthly prepayments reach principal sooner, so they save a bit more.
Limits to check first
Both options count against your prepayment privilege. Many closed mortgages allow lump sums of about 10% to 20% of the original principal a year, and lenders set separate limits on payment increases. TD, for example, publishes 15% a year for lump sums and increases of up to 100% of the original payment. Unused room usually does not carry forward, and amounts above your limit can trigger a penalty.
Frequently asked questions
Is it better to make a lump sum payment or increase mortgage payments?
Increasing your regular payment usually saves slightly more, because the money reaches your balance sooner. In our $500,000 at 5% example, $5,000 a year as higher monthly payments saved about $90,318 in interest, compared with about $86,592 as a year-end lump sum.
Can I lower my mortgage payment after increasing it?
Usually not until the end of your term. FCAC notes that once you increase your payments, you normally can’t lower them until the term ends, so many people choose a modest increase plus lump sums when they can.
How much can I prepay on my mortgage each year?
It depends on your contract. Many closed mortgages allow about 10% to 20% of the original principal a year as lump sums, plus a separate limit on payment increases. Unused room usually can’t be carried into the next year.
Should I pay down my mortgage or invest instead?
It depends on your rate, taxes, savings goals and comfort with risk. Payoff Lab shows how prepayments change interest and payoff time, but it does not give financial advice. Consider speaking with a qualified, independent advisor.
Try it with your numbers
Open the free calculator, enter the balance, rate and amortization from your own mortgage statement, then switch the payment frequency or add an extra monthly amount. It uses the same Canadian semi-annual compounding as the examples on this page.
Related guides
Sources
- FCAC: Paying off your mortgage faster
- FCAC: Mortgage fees and prepayment penalties
- TD: How to pay off your mortgage faster
- CIBC: What are mortgage prepayment charges?
Checked October 8, 2026. Rules and rates change, so confirm with your lender or the official page before you act.