Prepayment Privilege

Full Explanation

Prepayment privileges give mortgage holders the right to make additional payments beyond regular scheduled payments without incurring a prepayment penalty. Most Canadian mortgages allow annual lump-sum prepayments of 10–20% of the original mortgage amount (varies by lender) and/or increases to regular payment amounts by a similar percentage. Using prepayment privileges to reduce the principal can save tens of thousands of dollars in interest over the amortization period. For example, an extra $10,000/year on a $500,000 mortgage at 5.5% can eliminate nearly 9 years of payments.