Mortgage basics
Prepayment Privilege
Your right to pay extra principal each year without penalty — typically 10–20% of the original balance plus a payment-amount increase.
Most Canadian closed mortgages allow two prepayment options each calendar year, both penalty-free:
• A lump-sum prepayment of up to a percentage of the original mortgage amount (commonly 15% with A Lenders, sometimes 10% with B Lenders).
• A payment-amount increase of up to a percentage above the regular payment (commonly 15–20%).
Unused privilege does not roll over — it resets each year. Used together over a typical 5-year term, prepayment privileges can knock 4–7 years off your amortisation with no rate negotiation required.
Open mortgages have no prepayment penalty at all but charge a much higher rate. For most borrowers a closed mortgage with generous prepayment privilege is the better deal. Read your mortgage commitment carefully — the privilege percentages vary by lender and product.
Source: FCAC — Prepaying your mortgage