Prepayment Privilege
The annual allowance for paying down extra principal without triggering a penalty — typically 15%, 20%, or 25% of the original mortgage balance.
A prepayment privilege is the amount of extra principal you can pay down each year without triggering a prepayment penalty. Most Canadian mortgages offer annual privileges of 15%, 20%, or 25% of the original mortgage balance, typically split between lump-sum prepayments and payment increases (e.g., 15% lump sum + 15% payment increase). Privileges reset annually and are non-cumulative (you can't save unused privileges for future years at most lenders). Prepayments above the privilege trigger penalties calculated on the excess amount. Aggressive use of privileges is one of the highest-ROI mortgage strategies available.
Related Terms
The fee charged when you pay off or break a mortgage early — the greater of three months' interest or the IRD calculation for fixed-rate mortgages.
A payment frequency where you pay half your monthly payment every two weeks — producing 26 half-payments per year, equivalent to 13 monthly payments instead of 12.
Related Guides
Related FAQs
- How do prepayment privileges work, and what are the limits?
- How can homeowners use lump-sum prepayments effectively at renewal?
- What are the prepayment options available with Sagen-insured mortgages?
- How does OSFI's B-20 guideline affect mortgage underwriting and prepayment strategies?
- How is a mortgage prepayment penalty calculated in Canada?