What are prepayment privileges on a closed Ontario mortgage?

Prepayment privileges are the rights your mortgage contract grants you to pay down your principal beyond your regular scheduled payments without triggering a penalty. Even closed mortgages — which generally restrict early repayment — typically include some prepayment privileges.

The most common structure allows you to increase your regular payment by a percentage of the original payment amount each year (often ten to twenty percent) and also make lump-sum payments up to a percentage of the original principal (also commonly ten to twenty percent) once per year. Some lenders count both privileges toward the same overall limit; others treat them separately.

Using prepayment privileges can significantly reduce the total interest you pay over your amortization and shorten the time to payoff. However, if you exceed the allowed amounts — or make a payment at the wrong time of year — your lender may treat the excess as a prepayment and charge a penalty. Always confirm the timing rules, caps, and whether the privilege resets annually. Reviewing your mortgage commitment carefully and asking your broker to clarify any terms you do not understand helps avoid accidental penalties. Keeping a record of any lump-sum payments you make during the year is also a good practice.