# How do prepayment privileges work, and what are the limits?

> Prepayment privileges allow borrowers to make extra payments on their mortgage without penalty, up to a certain limit.

Category: Strategy
Last verified: 2026-04-14
Source: https://ratellow.com/faqs/strategy/how-do-prepayment-privileges-work-and-what-are-the-limits

## Answer
For example, consider these scenarios:

| Mortgage Amount | Annual Prepayment Allowance | Max Prepayment Amount | 
|-----------------|-----------------------------|-----------------------|
| $500,000        | 15%                         | $75,000              |
| $750,000        | 15%                         | $112,500             |
| $1,000,000      | 15%                         | $150,000             |

## Institutional highlights
- Rules set by the government affect how banks decide on your ability to prepay your mortgage.
- Making extra payments regularly can help you pay off your mortgage faster and build equity sooner.
- Lenders look at your income and debts to make sure you can still afford your mortgage, even with extra payments.
- Your home's value is important, as it affects how much you can borrow against it.
- Mortgage insurance protects the lender, but you still need to qualify for the mortgage based on your ability to repay.

## Related guide
- https://ratellow.com/guides/mortgage-prepayment-privileges

## Sources
- I. Purpose and scope of the guideline — https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017#1.0
- Mortgage Insurance Prepay and Re-Advance Policy — https://www.sagen.ca/ups/underwriting-documentation/#mortgage-insurance-prepay-and-re-advance-policy-638f55989d20b
- Disclosure requirements — https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-procedures-guideline-2017#3.1