Products and terms
Prepayment privilege
How much a closed mortgage lets you pay down each year without a penalty, typically 10% to 20% plus a payment increase.
Prepayment privileges are where most of the flexibility in a closed mortgage comes from. A typical product lets you pay a lump sum of 10% to 20% of the original principal each year, raise your regular payment by 10% to 20%, and often double up payments.
On a $400,000 mortgage, a 20% privilege is $80,000 a year, which is more than most households will ever prepay. In practice, a closed mortgage with strong privileges is flexible. You just can't pay it off in full early without a penalty.
One change costs nothing: switching from monthly to accelerated bi-weekly payments. You make the equivalent of 13 monthly payments a year instead of 12, which takes roughly 3 years off a 25-year amortization.
Privileges vary more between products than rates do, and low-rate no-frills products often restrict them. Ask before you sign.
Related terms
Prepayment penalty
The charge for paying off a closed mortgage early: 3 months of interest on a variable, or the greater of that and the IRD on a fixed.
No-frills mortgage
A lower-rate product with less flexibility, often including a bona-fide-sale clause that means the only early exit is selling the house.
Amortization
The total time it would take to pay your mortgage down to zero at your current payment, usually 25 or 30 years in Canada.
This definition describes how the term is used in Canadian residential mortgage lending. It’s general information, not advice on your file. Rules, thresholds and rates change. Where a figure is quoted, it’s current as of the date shown on the related guide.
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