Mortgage Prepayment Calculator
Enter your mortgage balance, rate and extra payments to see how much interest you save and how many years you shave off.
Important note
Compares your mortgage with and without extra payments, using Canadian semi-annual compounding.
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How this mortgage prepayment calculator works
Canadian mortgages compound semi-annually, not monthly, so this calculator converts your annual rate to an effective monthly rate with (1 + annual ÷ 2)^(2 ÷ 12) − 1 — the same convention most Canadian lenders use. It first computes your regular monthly payment from the standard amortization formula, then simulates the loan month by month twice: once with scheduled payments only, and once with your extra monthly amount and annual lump sum added. Every extra dollar goes straight to principal, which shrinks the balance that future interest is charged on. The difference between the two simulations is your interest saved and time saved. Because extra payments cut principal early, each dollar prepaid saves roughly the mortgage rate in interest for every year it would otherwise have been outstanding — a dollar prepaid in year one works far harder than the same dollar prepaid in year twenty.
A worked example
Take a $400,000 balance at 5% with 25 years remaining. The regular payment is about $2,326.42 per month; left alone, the loan runs the full 300 months and costs about $297,925.98 in interest. Add just $200 extra per month and the picture changes: payoff drops to 258 months and total interest falls to about $249,629.03. That is 42 months — three and a half years — shaved off, and about $48,296.95 of interest never paid, from an extra $200 a month. Try your own numbers above; small, consistent prepayments beat occasional large ones because they start reducing interest immediately.
Three tips for using this tool well
- Know your prepayment privileges first. Most Canadian closed mortgages allow 15–20% of the original balance per year without penalty; the calculator assumes your extra payments are allowed, so confirm the limit with your lender.
- Compare prepaying against investing. If your mortgage rate is 5% and your TFSA could earn more after tax, extra dollars might work harder invested — run both scenarios before deciding.
- Watch the renewal boundary. Prepayments reduce the balance at renewal, which can improve your loan-to-value and your negotiating position on the next term's rate.
Frequently asked questions
Where do extra payments go?
Straight to principal. Your regular payment covers that month's interest first and the rest reduces principal; a prepayment skips the interest part entirely, so 100% of it shrinks the balance that future interest accrues on.
Can I prepay any amount in Canada?
Usually not without limits. Most closed mortgages cap annual prepayments at 15–20% of the original principal; exceeding it can trigger a prepayment charge. Open mortgages allow unlimited prepayment but carry higher rates.
Is a lump sum or monthly extra better?
At the same annual total, monthly extras win slightly because they start cutting interest a month earlier each time. But the best prepayment is the one you will actually keep making — consistency beats optimization.
Does prepaying lower my monthly payment?
Generally no — your contractual payment stays the same and the loan just ends sooner. Some lenders let you re-amortize after a large lump sum, which can lower the payment; ask yours.
Why semi-annual compounding?
It is the Canadian legal standard for fixed-rate mortgages: the quoted annual rate compounds twice a year, and the equivalent monthly rate is derived from it. Using plain monthly compounding would slightly overstate the payment.
Should I prepay or invest the extra?
Compare after-tax returns. Prepaying earns a guaranteed, risk-free return equal to your mortgage rate; investing might earn more but with risk and taxes outside registered accounts. Many Canadians split the difference.