Mortgage Prepayment Calculator

What the Mortgage Prepayment Calculator does

This calculator models a one-time lump sum, an annual recurring lump sum and a higher regular payment against your actual mortgage balance, and shows the real interest saved and time cut from your amortization. It builds a full baseline schedule with no extra payments and a scenario schedule with everything you have entered, and compares them period by period rather than approximating.

It also does two things almost no lender calculator does: it checks your prepayments against your lender's annual privilege limit and estimates the penalty if you go over, and it shows precisely how much less a prepayment is worth if you delay it — because both of those are real, expensive traps that catch people who assume more prepayment is always simply better.

• Interest saved and time saved from your full prepayment plan
• Your new payoff date
• A privilege check against your lender's annual limit, with an estimated penalty if you exceed it
• A prepay-versus-invest comparison against a taxable alternative return
• A timing comparison showing what the same lump sum is worth today versus in five years
• Cost per $1,000 prepaid — the most intuitive way to see what your money is actually doing

The key variables that move the answer — and how lenders treat them

Three things decide how much a prepayment plan is actually worth, and lenders see each of them very differently from how a borrower typically thinks about them.

• Timing — a dollar prepaid today stops accruing interest for every remaining period of your amortization. The same dollar prepaid in five years only stops accruing interest for the periods left after that point. The gap between those two outcomes is large and it is the reason "I'll do it next year" is a genuinely costly decision, not a neutral one.
• The privilege limit — almost every Canadian lender caps penalty-free prepayment at a percentage of your ORIGINAL principal, typically 10% to 20% per year, and that base does not shrink as your balance falls. Confusing it with a percentage of your current balance is the most common and most expensive misunderstanding in this category — this calculator checks it explicitly so you do not find out the hard way.
• Your mortgage rate versus your alternative return — a prepayment is a guaranteed, effectively tax-free return equal to your mortgage rate. Whether that beats investing the same money instead depends on your alternative return and your marginal tax rate, since investment income is usually taxed and a prepayment is not.

How mortgage prepayment is actually calculated in Canada

Both the baseline and the scenario are built the same way: a level payment amortizing a balance at the periodic rate implied by semi-annual compounding, i = (1 + r ÷ 2)^(2 ÷ n) − 1. The scenario differs only in that lump-sum amounts are subtracted directly from the balance at the period they land on — immediately for a one-time lump sum, and at each 12-month anniversary for a recurring one — before interest is calculated on the reduced balance going forward.

A higher regular payment works differently: it is added to every period's payment permanently, which increases the principal portion of every single payment for the rest of the amortization, not just once. This is why a modest, permanent increase to your regular payment often outperforms an occasional lump sum of a similar total size — it compounds every period rather than just once.

The estimated penalty on prepayments over your privilege limit uses the standard three-months'-interest method applied to the excess amount, which is the minimum most lenders charge on an over-limit prepayment. Some lenders apply a more punitive interest-rate-differential calculation instead — always confirm the specific method with your lender before making a large prepayment.

• Periodic rate: i = (1 + r ÷ 2)^(2 ÷ n) − 1
• Lump sum: subtracted directly from balance at the period it is applied
• Extra regular payment: added to the payment every period, compounding across the full amortization
• Over-limit penalty estimate: excess balance × rate ÷ 4 (three months' interest)

What you get from this calculator, and how lenders use these numbers

Every output here maps to a real conversation with your lender about what you are allowed to do and what it is actually worth.

• Interest saved and time saved — the headline numbers, and the reason prepayment is one of the highest-value financial decisions most homeowners can make without renegotiating anything.
• Privilege check — lenders enforce this limit strictly and the penalty for exceeding it is real money, not a formality. Knowing your number before you make a large payment is the entire point of this section.
• Prepay vs invest — this is the framing a fee-only advisor would use: a prepayment is a guaranteed, tax-free return equal to your rate, and it should be compared honestly against what an alternative investment could realistically deliver after tax.
• Cost per $1,000 — lenders do not report this number, but it is the most intuitive way to understand what your money is doing: for every $1,000 you prepay today, you save a specific, calculable amount in future interest.

Using your results well

If you have a choice between a one-time lump sum and a smaller, permanent increase to your regular payment of similar total value, run both through this calculator — the permanent increase very often wins because it compounds every period rather than acting once. Prepaying earlier in your amortization also saves more than prepaying later, so a lump sum you are confident about is generally better used now than held for a bigger payment years from now.

What this calculator does not do is check your specific lender's prepayment rules for you — timing restrictions (some lenders only allow lump sums on your mortgage anniversary), the exact penalty formula for exceeding your privilege, and whether increasing your regular payment resets your privilege differently all vary by lender. Confirm the specifics before making a payment large enough for any of this to matter.

• Run your real numbers, then compare a lump sum against an equivalent permanent payment increase
• Check the privilege limit before making any large one-time payment, not after
• Prepay as early in the year and as early in your amortization as you reasonably can
• Compare your rate honestly against any alternative investment, after tax, before assuming the investment wins
• Confirm your lender's specific timing rules and penalty formula — this calculator estimates using standard conventions, not your contract

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