What a prepayment privilege is
A prepayment privilege is the amount you can put toward your mortgage on top of your regular payments without paying a prepayment penalty. FCAC lists two common forms:
- Lump-sum payments up to a set amount or percentage of the original mortgage amount, usually per year.
- Payment increases that raise your regular payment by a set percentage.
Open mortgages let you prepay any amount without a penalty, but they usually carry a higher rate. Closed mortgages have lower rates and cap what you can prepay. Go over the cap and you may pay a penalty on the excess.
Typical limits at Canadian lenders
CIBC notes that most closed mortgages allow you to prepay 10% to 20% of the original principal each year without a prepayment charge. A few published examples:
| Lender | Lump sum per year | Payment increase |
|---|---|---|
| TD | Up to 15% of the original amount borrowed per calendar year, in one or several payments | Increases totalling up to 100% of the original principal and interest payment (double) |
| RBC | Up to 10% of the original principal once in every 12-month period | Check your agreement |
| CIBC | Most closed mortgages: 10% to 20% of original principal per year | Varies by product |
On a $500,000 original mortgage, a 10% privilege lets you prepay up to $50,000 a year, 15% allows $75,000, and 20% allows $100,000. Most people never get close, but the limit matters when a bonus, inheritance or home sale is coming.
Rules that trip people up
- No carry-forward. FCAC notes you typically cannot carry an unused amount into the next year. If you skip this year, you do not get double next year.
- Calendar year vs anniversary year. Some lenders reset on January 1, others on your mortgage anniversary. The timing decides how much room you have left.
- Increases are usually locked in. FCAC says that once you increase your payments, you normally can’t lower them until the end of the term.
- Minimum amounts and dates. Some contracts set a minimum lump sum or only allow prepayments on certain dates.
- Before you break a mortgage. FCAC suggests making full use of your privileges before you break a mortgage, since the penalty is then calculated on a lower balance. Some lenders restrict prepayments right before a payout, so ask first.
Worked example: yearly lump sums on $500,000 at 5%
Here is the same $500,000, 5%, 25-year mortgage on monthly payments of $2,908.02, with a lump sum paid at the end of each year. Both amounts fit easily inside a 10% privilege.
| Plan | Total interest | Interest saved | Paid off in |
|---|---|---|---|
| No prepayments | $372,406.00 | – | 25 years |
| $5,000 at the end of every year | $285,813.95 | $86,592.05 | 19 years, 10 months |
| $10,000 at the end of every year | $233,798.61 | $138,607.39 | 16 years, 6 months |
A $5,000 yearly prepayment cuts about 5 years, 2 months off the loan. Doubling it to $10,000 cuts about 8 years, 6 months. These figures assume one rate for the whole amortization. Real rates will change at each renewal, so use them to compare plans, not to predict your payoff date.
Frequently asked questions
What are typical mortgage prepayment privileges in Canada?
Many closed mortgages let you prepay about 10% to 20% of the original principal each year without a penalty, and many also let you raise your regular payment. For example, TD publishes 15% of the original amount per calendar year and RBC publishes 10% once every 12 months. Your own contract sets the real limit.
Can I carry unused prepayment room into next year?
Usually not. FCAC notes that most lenders cap prepayments per year and you typically can’t carry an unused amount forward to the next year.
What happens if I prepay more than my privilege allows?
You may have to pay a prepayment penalty on the amount over your limit. On a closed fixed-rate mortgage that is usually the higher of three months’ interest or the interest rate differential.
Can I lower my payment again after increasing it?
Normally not until the end of your term. FCAC says that once you increase your payments, you usually can’t lower them until the term ends, so pick an increase you can keep up.
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: Mortgage fees and prepayment penalties
- FCAC: Paying off your mortgage faster
- CIBC: What are mortgage prepayment charges?
- TD: How to pay off your mortgage faster
- RBC: Mortgage prepayment options
- FCAC: Choosing a mortgage that is right for you
Checked October 8, 2026. Rules and rates change, so confirm with your lender or the official page before you act.