Short answer: most mortgages come with prepayment privileges that let you pay down extra principal each year, usually 10-20% of your original mortgage balance, without any penalty. Used consistently, they can take years off your amortization and save a meaningful amount in interest, but the exact limits vary by lender and it's easy to accidentally exceed them.
The Main Prepayment Privileges to Know
- Lump-sum prepayment: a one-time extra payment toward your principal, typically capped at 10-20% of your original mortgage amount per calendar year, depending on your lender.
- Increase your regular payment: most lenders let you permanently increase your monthly (or biweekly) payment amount by up to 10-25%, which compounds every payment instead of just once a year.
- Double-up payments: some lenders let you pay double your regular payment amount on any scheduled payment date, functioning as a smaller, more frequent lump sum.
- Accelerated payment frequency: switching to accelerated biweekly or weekly payments (see our payment frequency guide) adds roughly one extra monthly payment per year automatically.
Where to Find Your Actual Limits
Your specific prepayment privileges are spelled out in your original mortgage commitment or renewal letter, not on your monthly statement. They vary meaningfully by lender, some cap lump sums at 10% annually, others allow 20%, so it's worth confirming your exact number before assuming a general rule applies to your mortgage.
What Happens If You Go Over the Limit
Exceeding your allowed prepayment privilege in a given year can trigger a prepayment penalty on the excess amount, calculated the same way a full payout penalty would be. If you're planning a large lump sum, confirm your available room first, ideally by calling your lender directly, rather than assuming.
Does Your Privilege Reset or Roll Over?
For most lenders, your annual prepayment allowance resets on your mortgage anniversary date each year, and any unused portion does not carry forward. If you have room available and you're not using it, there's no benefit to saving it for "next year," since it simply expires.
Prepay the Mortgage, or Pay Off Other Debt First?
Mortgage rates are usually the cheapest form of debt a household carries. If you're also carrying credit card or personal loan balances at 19%+ interest, paying those down first almost always saves more than an extra mortgage payment would, even though the mortgage feels like the "bigger" debt. We help clients sequence this properly, sometimes that means a debt consolidation refinance instead of extra mortgage payments.
A Real Example
On a $400,000 mortgage at 5% amortized over 25 years, a single $10,000 lump-sum prepayment made early in the term can reduce your amortization by roughly 8-10 months and save several thousand dollars in interest over the life of the mortgage. The earlier in your amortization you make it, the bigger the impact, since more of each payment is still going toward interest early on.
Want a Real Prepayment Plan?
We'll check your actual privileges and model what a lump sum or payment increase would really save you. Talk to Sean before you make a prepayment.