Owning a home is one of the cornerstones of building financial assets for most Canadians.  However, making mortgage payments for 20 to 35 years can take quite a bite out of your budget, even with low interest rates.

It’s surprisingly easy to reduce the amortization – and the amount of interest paid.  When you pay off your mortgage faster, a big part of your household budget will become available to help you achieve your other financial goals.

Make a lump sum payment

A lump sum payment, or prepayment, is an amount you pay in addition to your regular mortgage payments within the mortgage term.  The prepayment reduces your outstanding principal balance.  The sooner you can make the prepayment, the less interest you will pay over the long term, and the sooner you will be mortgage-free.

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Your mortgage agreement will specify the maximum amount you can prepay each year (usually 10% – 25%) and how often (usually once per calendar year) without penalty.  The prepayment option is not cumulative, so if you don’t take advantage of it one year, you can’t double the payment the next year.

Coming up with such a large lump sum (up to $75,000 on a $300,000 mortgage) is next to impossible for most mortgage holders unless you’re lucky enough to receive a windfall.  Keep in mind though that even small lump sums – from a bonus or tax refund, for example – can still reduce your overall interest amount.

One thing to note, if you pay off your mortgage and are facing a penalty for doing so, the lender is obligated to reduce the mortgage balance by the allowable prepayment amount before calculating the penalty.

Increase the amount of your payments

One of the ways to pay off your mortgage faster is to increase the amount of your regular payment.  This option is easier for most people than coming up with a large lump sum.  Most mortgage lenders will allow you increase your payment by 10% to 100%, but there may be a fee if you change it again during the calendar year.

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Paying $100 extra a month on a $300,000 mortgage at 3.29% over 30 years will give you an interest savings of over $11,000 and reduce the amortization by 3 ½ years.

Make more frequent payments

Most financial institutions offer a number of payment frequency options.  The standard options are:  monthly, semi-monthly, biweekly and weekly.

Many people like to match the frequency to their pay periods for ease in budgeting.

If you decide to make more frequent payments, make sure you choose an accelerated option.  Accelerated weekly and biweekly payments can save you thousands, if not tens of thousands, in interest charges because you’ll pay off your mortgage much faster.  The reason is that you make the equivalent of one extra monthly payment each year.

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There is very little extra savings if you just switch to a more frequent payment without taking the “accelerated” option.

On the same $300,000 mortgage as above, a biweekly payment will save just $289 in interest.  On the other hand, an accelerated biweekly payment (an extra $50 per payment) will save over $18,000 over the life of the mortgage.

Keep your payments the same if you renew at a lower rate

When you renew your mortgage, if the interest rate is lower than what you were paying previously, your regular payment will be less.  You could pay off your mortgage faster by simply keeping the amount of your payments the same.


You can save thousands of dollars in interest by paying off your mortgage as fast as your household budget allows.  Choose any one, all, or a combination of the prepayment options available to you.

Contact your mortgage lender for your payment options and any penalties and fees you may be required to pay.

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