What does paying extra on my mortgage save?
What an extra payment takes off the interest and off the years, and the date the mortgage clears instead.
What is left on the mortgage today.
Not the term. How long until the mortgage clears entirely.
Added to each regular payment, all of it against principal.
Paid now. Check your prepayment privileges before making one.
Interest saved
$34,802
and the mortgage clears 2 years, 6 months earlier, in 19 years, 6 months rather than 22 years.
- Regular payment
- $2,748.83
- With the extra
- $2,948.83
- Time saved
- 2 years, 6 months
- Interest saved
- $34,802
| Interest, as it stands | $275,692 |
|---|---|
| Interest, paying extra | $240,890 |
| Saved | $34,802 |
| Payments remaining, as it stands | 264 |
| Payments remaining, paying extra | 234 |
Both figures come from running the whole schedule twice and taking the difference, rather than from a formula. That matters because paying extra does not shrink the later payments, it removes them, and everything after the new payoff date simply stops existing.
Why an extra payment does so much
Every dollar paid above the regular payment goes entirely against principal, and principal is what the interest is charged on. So the saving is not the dollar, it is every future interest charge that dollar would have attracted for the rest of the amortization. Early in a mortgage, when the balance is large and most of each payment is interest, that multiple is at its highest.
The two figures above come from running the entire schedule twice, once with the extra payments and once without, and taking the difference. That is deliberate: paying extra does not make the later payments smaller, it removes them, and a formula that scales the interest down misses what actually happens.
Prepayment privileges are contractual
How much you may prepay, and when, is set by your mortgage contract rather than by any government. A common arrangement allows a lump sum of ten to twenty per cent of the original principal once a year and an increase of ten to twenty per cent to the regular payment. Exceeding it triggers a penalty, and closed mortgages differ widely. Check your own agreement before making a large prepayment.
What this will not estimate
It will not estimate a prepayment penalty. On a fixed-rate mortgage the penalty is normally the greater of three months of interest and an interest rate differential the lender computes from its own posted rates at the time, using terms only the lender holds. Any figure this site produced for that would be a guess presented next to arithmetic, so there is not one. Your lender will quote it.
What this assumes
- The rate holds until the mortgage clears
- It will not: you will renew at least once, probably several times. The saving shown is what the extra payments are worth at today's rate.
- The lump sum is paid now
- It lands on the first payment period. A lump sum paid later saves less, because it has fewer years of interest to remove.
- Your prepayment privileges allow it
- This calculator does not know your contract. It applies the extra payments as entered and assumes no penalty is charged.
Sources
- How much you need for a down payment · Financial Consumer Agency of Canada · checked
- Mortgage loan insurance premiums · Canada Mortgage and Housing Corporation · checked
- CMHC Purchase: mortgage loan insurance for homeownership · Canada Mortgage and Housing Corporation · checked
- CMHC Home Start · Canada Mortgage and Housing Corporation · checked
- CMHC Revises Homeowner Mortgage Loan Insurance Premiums · Canada Mortgage and Housing Corporation · checked
- Minimum qualifying rate for uninsured mortgages · Office of the Superintendent of Financial Institutions · checked
- Boldest mortgage reforms in decades come into force today · Department of Finance Canada · checked
The rules behind this calculator were last checked on .