Recasting Your Mortgage After a Lump-Sum Prepayment in Canada

A recast (also called re-amortization) recalculates the scheduled payment on the reduced principal balance using the existing interest rate and a reset amortization clock. It is not a refinance: no new mortgage contract is created, no stress test applies under OSFI B-20, and no IRD or three-months-interest penalty is triggered. The rate, lender, and mortgage terms remain unchanged. The distinction matters because many borrowers conflate 'lowering my payment' with 'refinancing,' which carries materially different costs and qualification requirements in the 2025–2026 rate environment.

Recast availability is not standardized across Canadian lenders and is not mandated by OSFI or the Interest Act. Policy splits roughly as follows:

Big-6 banks: Most permit re-amortization only at renewal, not mid-term. A handful allow a one-time mid-term recast if the prepayment exceeds a threshold (commonly 10–20% of original principal), but this must be explicitly stated in the mortgage commitment.

Monolines and credit unions: More variable. Some monolines (e.g., First National, MCAP) have published prepayment privilege language that permits re-amortization on request after an annual lump-sum payment. Credit unions operating under provincial regulation (not OSFI) sometimes offer more flexible mid-term recast provisions.

Private and MIC lenders: Recast terms are fully negotiated at origination — confirm in writing before signing.

The practical rule: read your mortgage commitment's prepayment privilege section before assuming a recast is available.

Applying a lump sum without requesting a recast accelerates amortization — every dollar of principal reduction saves interest at the contract rate over the remaining term. Requesting a recast instead redirects that interest saving into monthly cash-flow relief rather than a shorter payoff horizon. The right choice depends on three variables:

1. Cash-flow need. If the borrower carries higher-rate consumer debt (credit cards at 19–22%, HELOCs at prime + 0.5–1.0%), the freed-up $390/month in the worked example is better deployed servicing that debt than accelerating a 5.25% mortgage.

2. Rate environment. With 5-year fixed rates at 5.0–5.5% in 2026, the opportunity cost of not prepaying is meaningful. If the borrower has no higher-rate debt and no near-term cash-flow pressure, skipping the recast and letting the amortization shorten is the mathematically superior outcome.

3. Renewal proximity. If renewal is within 12–18 months, a mid-term recast may be unnecessary — the borrower can simply apply the lump sum now (reducing balance and interest cost) and negotiate a lower payment at renewal when the new amortization schedule is set.

The recast request process is lender-specific but generally follows this sequence:

1. Confirm eligibility. Call or write to your lender's mortgage servicing team and ask explicitly whether your mortgage contract permits mid-term re-amortization after a prepayment. Reference the prepayment privilege clause by section number if possible.

2. Apply the lump sum first. Most lenders require the prepayment to post before processing the re-amortization calculation. Timing matters: prepayments applied on or near a payment date reduce principal more efficiently.

3. Submit a written recast request. Some lenders require a signed form; others accept a secure-message instruction. Confirm the new payment amount and effective date in writing before the next billing cycle.

4. Verify the output. Request a revised amortization schedule showing the new payment, remaining term, and total interest cost. Confirm the amortization reset does not inadvertently extend beyond the original contracted amortization end date — some lenders cap the re-amortization at the original end date rather than the remaining term.

For CMHC-, Sagen-, or Canada Guaranty-insured mortgages, a recast does not constitute a new insured transaction and does not trigger a new insurance premium. However, the insurer's guidelines constrain what the lender can do: the re-amortized schedule cannot extend the total amortization beyond the original insured maximum (25 years for most insured mortgages originated before the December 2024 reforms; 30 years for first-time buyers on new construction under the 2024 expanded rules). A borrower who is 3 years into a 25-year insured mortgage can recast over the remaining 22 years — they cannot recast back to 25 years. Lenders that attempt to re-amortize beyond the original insured term risk a compliance issue with the insurer.

For owner-occupied properties, mortgage interest is not tax-deductible in Canada, so the after-tax cost of the mortgage equals the contract rate. A salaried borrower in a 43% marginal bracket (Ontario, ~$120k income) who redirects the $390/month cash-flow saving into a TFSA or RRSP contribution earns a tax-sheltered return that may exceed the 5.25% mortgage rate on a risk-adjusted basis — particularly in a TFSA where withdrawals are tax-free. This is the core argument for recasting rather than simply prepaying and shortening amortization: the freed cash flow can be deployed into registered accounts at a higher effective after-tax return than the mortgage rate.