Mortgage Prepayment Calculator

How this is calculated

The baseline schedule uses the Canadian fixed-rate convention. The annual rate compounds semi-annually, so the effective monthly rate is i = (1 + annual rate ÷ 2)^1/6 − 1, and the regular payment is P = L × i ÷ (1 − (1 + i)⁻ⁿ). The lump sum is subtracted from the balance before the schedule starts, and any extra monthly amount is added to each payment. Both schedules are then simulated month by month, splitting every payment into interest and principal, until the balance reaches zero. The interest saved is the difference between the two totals, and the time saved is the difference in payoff dates.

Because the interest you are charged each month is based on the remaining balance, a prepayment has a compounding effect. The lump sum removes interest immediately, and every extra dollar of monthly principal also removes all the future interest that dollar would have accrued. That is why a modest extra payment can shorten the amortization by years.

Things to watch:

• Most Canadian mortgages allow a prepayment privilege of around 10% to 20% of the original balance each year; going over can trigger a penalty.
• The tool assumes the rate stays constant for the whole amortization and that the lender applies the full payment to principal with no prepayment fee.
• A lump sum larger than the balance simply pays the mortgage off; the tool caps the effect at zero interest.

All figures are estimates for planning only, not a quote, pre-approval, or approval. Confirm your prepayment limits and how extra payments are applied with your lender.