Why pay your mortgage off faster?
Even if you have many years to pay off your mortgage, speeding up the process can help you:
Save on interest
Pay down your balance faster
Shorten your amortization period
Before putting more money toward your mortgage, make sure you're in a position to do so. Verify that you:
- Have an emergency fund that can cover 3 to 6 months of living expenses
- Don't have other debts with interest rates higher than that of your mortgage
- Can still save and pursue other projects while maximizing your mortgage payments
3 options for paying off your mortgage faster
Discover the features and benefits of our repayment options and when prepayment charges apply.
Good to know
You might have prepayment charges when you make changes to your mortgage that were not set out in your contract.
1. Make a prepayment
You can pay off, without prepayment charges, up to 15% of the original amount of your mortgage loan every year. This amount must go toward partially paying off your loan and can't be carried over to the following year.
Contact an advisor to see if this strategy works for you or if you want to make a prepayment. You can also use the Prepay feature on AccèsD.
Benefits
- You reduce your balance, since prepayments go toward your principal for the most part.
- You shorten the amortization of your mortgage.
- You save on interest.
- You can make partial payments of at least $100.
- You can combine the prepayment option with the increased payment or accelerated payment option.
Prepayment charges
With a closed mortgage
You don't pay any prepayment charges if you repay up to 15% of the original amount stated in your loan contract.
With an open mortgage
There's no limit to the amount you can pay back. You can repay more than 15% of the original amount in your loan contract without any prepayment charges, unless you benefit from certain offers, such as a cash back offer.
Examples
With a closed mortgage
You borrowed $500,000. You have $300,000 left to pay back. One year, you decide to pay $30,000 to pay down your mortgage faster, in addition to your regular payments. Since you're within the limit of $75,000 per year, that is, 15% of $500,000, you don't pay any prepayment charges.
A few years later, you want to put down an additional $85,000. But you then realize that you'll pay prepayment charges, because that's over the $75,000 limit stated in your contract. With a calculator, you estimate what the prepayment charges are if you decide to go ahead with the lump payment. That way, you can see if this option meets your needs.
With an open mortgage
A few years ago, you borrowed $400,000. You now have $200,000 to pay back. After an unexpected windfall, you decide to put $80,000 toward your loan, which equals 20% of the $400,000 you borrowed. Since you have an open mortgage, you have no prepayment charges.
2. Increase the amount of your mortgage payments
You can pay up to double the original payment amount set out in your contract without prepayment charges. Contact a mortgage advisor to see if this strategy works for you or to increase your payment amount.
Benefits
- You have the chance to reduce your balance, since the amounts added to your payments go toward your principal for the most part.
- You shorten the amortization of your mortgage.
- You save on interest.
- You can increase your payments by only a small amount if you prefer.
- You have the option to return to your original payment plan if your situation changes.
- You can combine the increased payment option with the prepayment option.
Prepayment charges
With a closed mortgage
You don't pay any prepayment charges if you pay up to twice the original payment amount stated in your loan contract.
With an open mortgage
There's no limit to the amount you can pay back. You can increase your payments as you like without any prepayment charges, unless you benefit from certain offers, such as a cash back offer.
Examples
With a closed mortgage
Your original mortgage payment, set out in your contract, is $1,500 a month. To pay off your mortgage faster, you decide to increase your monthly payments to $2,500. Double of the original amount set out in your contract would equal $3,000 a month. Since you're paying less than that, you won't incur any prepayment charges.
A few months later, you think of increasing your payment amounts by another $700, to $3,200 a month. However, you then realize you'd incur prepayment charges, since you'd be paying more than double ($3,000) your original monthly amount. You decide to stay under the limit set out in your contract and to contact an advisor to explore your repayment options.
With an open mortgage
Your original mortgage payment, set out in your contract, is $1,000 a month. You want to pay off your mortgage faster and decide to increase your monthly payments to $3,500. You have an open mortgage, so you don't incur any prepayment charges.
3. Make accelerated payments
You can choose to make accelerated payments weekly or every 2 weeks. On this schedule, the amount you pay each year is a little higher. Contact a mortgage advisor to see if this strategy works for you or to switch to accelerated payments.
Benefits
- You pay down 1 additional month off the principal per year in general.
- You shorten the amortization of your mortgage.
- You save on interest.
- You can change to accelerated payments at any time.
- You can combine the accelerated payment option with the prepayment option.
Prepayment charges
With a closed mortgage or open mortgage
You pay no prepayment charges if you choose this option.
Example
With a closed or open mortgage
You buy a property for $400,000. Since you put down $80,000 as your down payment, your mortgage is $320,000
- $986.97 every 2 weeks
- $1,070.75 (accelerated payments) every 2 weeks
By choosing accelerated payments every 2 weeks, you reduce your amortization period by about 4 years. This way, you pay off your mortgage faster. You don't have prepayment charges with this option.
Already paid off your mortgage?
Here are some options to make the most of your money.
Pay down your high-interest debt, like your credit card balance.
Contribute to your registered retirement savings plan (RRSP) or tax-free savings account (TFSA).
Invest in your children's or grandchildren's future with a registered education savings plan (RESP).
FAQ
How do I estimate my prepayment charges?
You can use our calculator to estimate your prepayment charges.
Estimate your prepayment charges
Contact your mortgage advisor if you want advice or would like the exact amount of your prepayment charges. Their calculations account for all your loan conditions, which will help you understand your options.
Are there other strategies to pay off my mortgage without prepayment charges?
Yes. You have different options depending on your situation:
- Combine a prepayment with an increase in your mortgage payments or with an accelerated payment schedule. Make sure you stay within the repayment limits stated in your loan agreement.
- Wait until your term ends to repay any amount that exceeds the maximum stated in your loan agreement. You can pay down as much as you want when you're about to renew your loan.
Can I skip or defer a mortgage payment?
No. If you're having financial problems, contact your mortgage advisor to discuss the situation and potential solutions.
Should I pay down my mortgage faster or contribute to my RRSP?
That depends on your specific situation. Many factors go into deciding what to do with your money, such as your age, the time remaining before you retire, your mortgage rate, your RRSP yield rate, your tax rate, and more. Most of the time, you should have a balance between your mortgage payments and your RRSP contributions.
Contact your advisor to set up a plan tailored to you.
Pay off your mortgage faster
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Elsewhere in Canada:
1-844-626-2476 Canada-wide mortgage services. This link opens your phone app.
We can also call you when it's convenient.