How to pay off your mortgage early in Canada

How can I pay off my mortgage faster?

There are six common ways, and most homeowners combine two or three. All of them do the same thing: they put money on the principal sooner, so less of it is left to charge interest on.

1. Accelerated bi-weekly or weekly payments, which add one monthly payment's worth each year.
2. A higher regular payment, up to your payment-increase privilege.
3. Rounding up each payment, for example from $2,908 to $3,000.
4. Lump sums from a tax refund, a bonus or savings, up to your lump-sum privilege.
5. A shorter amortization at renewal, which raises the payment and cuts the years left.
6. Keeping your payment the same when your rate falls at renewal, so the difference goes on the principal.

The Financial Consumer Agency of Canada (FCAC) lists the same options and adds the warning that matters most: if you pay more than your mortgage allows, you pay a prepayment penalty. Read your contract, or ask your lender, before you send extra money.

How much does paying extra save? A $500,000 example

On a $500,000 mortgage at 5% over 25 years, the regular monthly payment is $2,908.02 and the total interest is about $372,400. Here is what each strategy does to that, on its own:

Assumptions: $500,000 borrowed at a 5% fixed rate for the whole amortization, compounded semi-annually as Canadian fixed-rate mortgages are; monthly payments of $2,908.02; lump sums paid at the end of each year, starting after year 1; every extra amount within the prepayment privileges. These are round numbers to show the arithmetic, not a forecast or a lender's rate. Worked out payment by payment and checked against the standard mortgage formula.

Two things stand out. Small, regular extras add up: $200 a month is about 7% more than the payment, and it takes almost three years off. And money paid early does the most work, because it saves interest for every remaining year of the mortgage.

What are prepayment privileges?

Prepayment privileges are the extra amounts a closed mortgage lets you pay each year without a penalty. There are usually two: a lump-sum allowance, often a percentage of the original mortgage amount, and a payment-increase allowance, a percentage of your regular payment.

They vary a lot between lenders and products. The FCAC's sample mortgage disclosure uses a "10+10" privilege: once a year, a lump sum of up to 10% of the original mortgage amount and an increase of up to 10% of the original payment. Many mortgages allow more, some allow less, and some lower-rate products allow very little. Check your mortgage: the amounts are in your contract, and federally regulated lenders show the dollar amount you can prepay that year on your annual statement.

• The year usually resets on the mortgage's anniversary or on January 1, depending on the contract.
• Unused room usually doesn't carry over. The FCAC notes that if you don't use a year's privilege, you generally lose it.
• A payment increase may be permanent for the term, or your lender may let you lower it again later. Ask before you raise it.
• Some lenders let you re-borrow prepayments or skip a payment later. Read those terms before you rely on them.

On the $500,000 example, a 10% lump-sum privilege is $50,000 a year and a 10% increase privilege is about $290 a month, so the extras in the table above fit comfortably.

Do accelerated bi-weekly payments really save money?

Yes, but only the accelerated kind. An accelerated bi-weekly payment is half your monthly payment, paid every two weeks. There are 26 bi-weekly periods in a year, so you pay the equivalent of 13 monthly payments instead of 12. That 13th payment goes straight to principal.

A regular, non-accelerated bi-weekly payment is your yearly total divided by 26. You pay the same amount a year as monthly, so it saves very little: about $1,900 over 25 years on our example, against about $60,400 for accelerated. Our guide to accelerated bi-weekly vs monthly payments has every frequency side by side.

Does rounding up my mortgage payment help?

Yes. Rounding up is the easiest extra payment there is: you set the payment a little higher and stop thinking about it. Rounding $2,908.02 up to $3,000 a month puts about $92 more on principal every month; $100 a month on our example saves about $26,900 and a year and a half.

A rounded-up payment counts against your payment-increase privilege, so keep the new amount within it.

Should I put my tax refund or bonus on the mortgage?

A lump sum on the mortgage is a good use of a refund or bonus once the basics are covered: an emergency fund, no high-interest debt, and your employer's RRSP match taken. On our example, one $10,000 lump sum after the first year saves about $22,000 of interest and takes 11 months off the mortgage.

Time it well. If your privilege year resets on the mortgage anniversary, a lump sum just before it uses this year's room, and the next year's room opens soon after. Many lenders also set a minimum lump sum, often a few hundred dollars.

A refund from an RRSP contribution is a special case: putting it on the mortgage lets you use both. Our guide on paying down the mortgage or investing works through it at BC and Alberta 2026 rates.

What happens at renewal?

Renewal is the best time to speed things up. When your term ends you can pay down any amount, change your payment frequency and choose a shorter amortization, all without a prepayment penalty. Federally regulated lenders must send your renewal statement at least 21 days before the term ends.

A shorter amortization raises the payment and cuts the interest. In our example, after five years $442,538 is left with 20 years to go. Renewing at the same 5% over 15 years instead of 20:

That is about $580 more a month and about $70,100 less interest. If your rate goes down at renewal, keeping your old payment does the same thing automatically. The FCAC's advice runs the other way too: think twice before extending your amortization to lower the payment, because it adds interest.

Open vs closed mortgages: which can I pay off early?

An open mortgage can be paid down or paid off at any time without a penalty; a closed mortgage limits extra payments to its prepayment privileges and charges a penalty above them. Open mortgages cost more: the rate is usually noticeably higher than a closed mortgage for the same term.

An open mortgage can make sense if you expect a large sum soon, such as from selling another property or an inheritance, or if you may sell the home within the term. For most people paying off steadily, a closed mortgage with good privileges costs less. A home equity line of credit is also open: you can repay it at any time.

Can I pay off my mortgage early without a penalty?

Yes, in four ways: stay within your prepayment privileges, pay it off at the end of the term (at renewal), have an open mortgage, or, on a term longer than five years, wait until five years have passed. Under section 10 of the Interest Act, an individual can then repay with no more than three months' extra interest.

Outside those, paying more than the privileges allow, or paying off a closed mortgage in the middle of a term, usually costs a penalty: the higher of three months' interest or the interest rate differential (IRD) on a fixed rate. It can be large. Our guide to mortgage prepayment penalties explains both and how to get the exact figure from your lender.

Is paying off the mortgage a good investment?

It is a risk-free one. Interest on a mortgage for the home you live in isn't tax-deductible in Canada, so every dollar of principal you pay off saves interest at your mortgage rate, tax-free. Paying down a 5% mortgage is the same as earning 5% after tax, with no risk.

To beat that in a taxable investment account, you need a higher return before tax. Interest income at a 28.2% marginal rate in BC (a $100,000 salary in 2026) would need about 7% before tax to match a 5% mortgage. Investments inside a TFSA or RRSP change the comparison, which is why the order of priorities matters more than the rate alone.

When should you NOT pay off your mortgage early?

Paying down the mortgage is a good use of spare money, but not always the first one. Hold off, or do these first, if:

• You have no emergency fund. Money on the mortgage is hard to get back. Keep three to six months of expenses somewhere you can reach.
• You carry high-interest debt. Credit cards and many personal loans charge far more than a mortgage. Pay those off first.
• Your employer matches RRSP contributions. A 50% or 100% match is an instant return no mortgage can equal.
• You're in a high tax bracket and have RRSP room. At a 40.7% marginal rate (a $150,000 salary in BC in 2026), a $10,000 RRSP contribution cuts income tax by about $4,000. You can then put that refund on the mortgage.
• You're saving for a first home. The first home savings account (FHSA) gives a deduction going in and tax-free withdrawals for a first home. It can't be used for a mortgage you already have.
• You might need the money soon, for a business, a renovation or a move. Borrowing it back later may cost more than you saved.

Our guides to RRSP vs TFSA and paying down the mortgage or investing help with the order.

What about the Smith Manoeuvre?

The Smith Manoeuvre is the opposite approach. Instead of paying the mortgage off and owning the home free and clear, you re-borrow each dollar of principal on a home equity line of credit and invest it in a non-registered account, so the interest on that borrowing becomes tax-deductible. Your total debt stays about the same.

It swaps a certain return for leveraged investing and only suits some people. Our Smith Manoeuvre guide explains the CRA rules and the risks.

Is anything different in BC and Alberta?

Not for the mortgage rules: prepayment privileges and penalties come from your contract, and the Interest Act and the FCAC's rules for federally regulated lenders apply across Canada. Credit unions are mostly provincially regulated, so their disclosure rules come from the province, but the contract still sets the privileges and the penalty.

What differs is tax, when you compare prepaying with an RRSP contribution: at a $100,000 salary in 2026 the marginal rate is 28.2% in BC and 30.5% in Alberta. The income tax calculator and the RRSP tax savings calculator show your own numbers.

A simple plan

1. Find your privileges on your contract or annual statement: the lump-sum percentage, the payment-increase percentage and when the year resets.
2. Cover the basics first: emergency fund, high-interest debt, employer match.
3. Switch to accelerated bi-weekly or weekly, or round up, so it happens automatically.
4. Send lump sums from refunds and bonuses, within the privilege.
5. At renewal, pay down what you can, keep the payment or shorten the amortization, and compare offers.

This guide is general information for people in BC and Alberta, checked against the Financial Consumer Agency of Canada's pages, the Interest Act and the CRA's pages on 5 Nov 2026. Your mortgage contract decides what you can prepay and what a penalty costs. It isn't financial, tax, legal or borrowing advice for your situation.