Home Buying

Mortgage Prepayment | Should You Pre-Pay Your Mortgage?

Mortgage Prepayment | Should You Pre-Pay Your Mortgage?
Written by
  • nesto
| Oct 22, 2020
Reviewed, May 7, 2024
Share:

Table of contents

    Mortgage prepayment options empower homeowners to increase their monthly payments or pay off their mortgage entirely and without penalty. How will a lump-sum payment affect your mortgage? Read on to learn all there is to know about mortgage prepayment privileges.


    Key Takeaways

    • Lump sum mortgage prepayments are the fastest way to pay down your mortgage principal
    • You can make mortgage prepayments every month by increasing your payments or accelerating your payment schedule
    • Mortgage prepayments may not be the best use of your extra cash

    Best Mortgage Rates

    Fixed
    Variable
    in

    0.00%3 Year Fixed

    Get Rates

    0.00%5 Year Fixed

    Get Rates
    Check more rates

    Lump-Sum vs Monthly Prepayment

    There are 2 main types of prepayment options available to homeowners. A lump-sum payment is one large payment made towards the mortgage, whereas a monthly pre-payment is made every month and is typically agreed upon when you sign your mortgage documents.

    Tip: If you want to add a monthly pre-payment in the middle of your mortgage term, ask your lender.Increased Payment Amounts

    What is a Lump-Sum Mortgage Prepayment?

    Did you stumble into some money? Suddenly, do you have the urge to pay down your mortgage principal? A lump sum mortgage payment can be very helpful for homeowners who want to reduce their mortgage principal quickly. How do you make a lump sum payment? This will differ between lenders, as will the frequency with which they allow lump sum mortgage payments. You may, for example, only be allowed a few lump sum payments for the duration of your mortgage term.  

    Important: Not all mortgages allow lump-sum payments.

    What is a Monthly Mortgage Prepayment?

    Increased Payment Amounts

    Many lenders will allow up to a 20% increase in your monthly payments. This comes in handy when you receive a large raise and want to put the money to good use. A small increase can make a difference too, consider rounding up to the nearest $10.

    Accelerated Payment Schedule

    Mortgages are set up to be paid once monthly – any increase in that payment schedule is a monthly mortgage prepayment. It’s in your best interest to increase the frequency of your mortgage payments. Not only could you be paying down the principal faster with more frequent payments, but choose ‘accelerated’ and you can shave off your amortization period even more. Many lenders offer bi-weekly, weekly and accelerated options to keep more money in the pockets of homeowners. Did you select regular once-monthly payments when you first signed your mortgage? Some lenders will allow you to change your payment frequency mid-term. 

    Mortgage payment plans aren’t meant to be one-size-fits-all.

    Chat with a nesto mortgage expert & get a mortgage payment fit to you.

    Accelerated vs Non-accelerated Mortgage Payments

    • Bi-weekly – Your regular monthly mortgage payment amount multiplied by 12 months, divided by 24 and paid two times each month.
    • Bi-weekly Accelerated – The bi-weekly payment amount is paid every 14 days from your first payment date. In a year’s time, you will have made one or 2 more payments than homeowners who chose non-accelerated payments.

    Are Mortgage Prepayments the Best Use of Your Extra Cash?

    Prepayment privileges are a great way to get ahead on your mortgage. Prepayments reduce your amortization period so you’ll end up paying less interest and saving more money overall. But, it’s important to consider all your options before making an irrevocable prepayment on your mortgage. Have you maxed out your RRSP for the year? Check if the tax savings on an RRSP contribution would be more beneficial to your financial health.

    Final Thoughts

    There are three ways to fast-track your mortgage.

    • Lump Sum Payments – A one-off payment against your principal and the fastest way to pay down your mortgage.
    • Accelerated Payment Schedule – Increase your payment frequency to weekly or bi-weekly accelerated.
    • Increased Payment Amounts – Increase your weekly, bi-weekly or monthly payment amount by up to 20%.

    Mortgage prepayments are a convenient way to chip away at your mortgage principal and your amortization period. See How to Pay off Your Mortgage Faster.

    How nesto works

    At nesto, all of our commission-free mortgage experts hold concurrent professional designations from one or more provinces. Our clients will receive the best advice and care when they speak with specialists that exceed the industry status quo. 

    Unlike the industry norm, our agents are not commissioned but salaried employees. This means you’ll get free, unbiased advice on the most suitable mortgage solution for your unique needs. Our advisors are measured on the satisfaction and quality of advice they provide to their clients. 

    nesto is working hard to change how the mortgage industry functions. We start with honest and transparent advice, followed by our best rates upfront. We can offer you these low rates using the fintech industry’s best-in-class and safest technology to provide a 100% digital online experience and process to reduce overhead costs.

    By working remotely across Canada, all our mortgage experts and staff spend less time commuting to work and more time with their friends and family. This makes for more dedicated employees and contributes to our success with happy and satisfied clients.

    nesto is on a mission to offer a positive, empowering and transparent property financing experience, simplified from start to finish.

    Reach out to our licensed and knowledgeable mortgage experts to find your best mortgage rate in Canada.


    Ready to get started?

    In just a few clicks, you can see our current rates. Then apply for your mortgage online in minutes!

    Best Mortgage Rates

    Fixed
    Variable
    in

    0.00%3 Year Fixed

    Get Rates

    0.00%5 Year Fixed

    Get Rates
    Check more rates