Mortgage Calculator With Extra Payments Options
About This Extra Mortgage Payment Calculator
Increasing your mortgage payments by making regular extra payments or by switching to an accelerated payment frequency can allow you to pay off your mortgage faster and save you money. This extra mortgage payment calculator allows you to see how increasing your regular mortgage payment by a certain amount can result in big interest savings over the long-run. It also calculates your mortgage interest savings just by switching to an accelerated bi-weekly or accelerated weekly mortgage payment.
How Do Extra Mortgage Payments Work đź’ˇ
A regular mortgage payment is split between paying your mortgage interest and principal. When you make an extra mortgage payment, it is treated as a prepayment. This means that all of the extra mortgage payment can be applied directly to your principal balance. This helps reduce your total mortgage amortization and also lowers the overall amount of interest you will pay.
Can I Make Extra Mortgage Payments?
Not all lenders allow you to make extra mortgage payments, and they may also limit the amount of extra payments that you can make each year. For example, RBC allows you to make extra payments, as a mortgage prepayment, equal to 10% of your original mortgage principal amount every year. You can also "Double Up" your regular mortgage payment, which allows you to prepay between $100 up to your regular mortgage payment amount, with this amount going directly against your mortgage's principal balance.
In other words, if your monthly mortgage payment is $1,500 with RBC, then you can make an extra payment of between $100 to $1,500 every month. You can’t make an extra mortgage payment of over $1,500 in a given month, even if you didn’t make an extra payment the previous month. You can, however, make a one-time prepayment by using your annual 10% prepayment allowance. Going over this limit will cause mortgage penalties to apply.
In most cases, the “increase your mortgage” feature does not affect your original mortgage payment amount. For example, if you double up your RBC mortgage payment from $1,500 to $3,000, you’re not required to make a $3,000 mortgage payment the next month. Instead, it will still be $1,500, unless you decide to make another extra payment. Some lenders might only allow you to increase your regular mortgage payment amount. This means that increasing it will permanently affect your future payments, and it might not be possible to decrease it in the future.
Does Your Bank Allow You To Increase Your Mortgage Payments?
Payment Increase Limits at Canada’s 5 Big Banks
| Bank | Increase Limit |
RBC | Up to 100% |
TD | Up to 100% |
Scotiabank | Up to 100% |
CIBC | Up to 100% |
BMO | Up to 20% |
Start Off Early! đź’ˇ
Because of compounding, if you start making extra payments early in your loan term, the savings will be greater. When you make an extra payment, your principal balance gets paid down. That paid-off portion of your principal no longer accrues interest. Since mortgages are amortized where a bigger portion of your mortgage payments early on goes towards interest, paying extra early on can save you more in the long run.
Comparing Types of Extra Payments
Accelerated Mortgage Payments
In Canada, the two main accelerated mortgage payment frequencies are accelerated bi-weekly and accelerated weekly. With an accelerated mortgage payment, you make a payment more frequently than the traditional monthly payment, but your payment is still based on the regular monthly amount.
For example, the payment amount for accelerated bi-weekly would be what the monthly payment amount would be, divided by 2, and paid 26 times each year. In other words, you’ll be paying every two weeks, at an amount that is slightly higher than what a normal bi-weekly payment would be. This results in you paying for the equivalent of 13 months of monthly mortgage payments every year. This extra payment allows for your mortgage to be paid down faster, saving you interest.
With a regular biweekly payment, it's also paid 26 times per year. However, the payment amount is calculated as the total monthly mortgage payment for the year, divided by 26. This makes the total payment amount the same as a monthly mortgage payment. In other words, the benefit of a biweekly payment is that the payments are made more frequently, which can slightly reduce interest paid due to compounding, but there aren’t any extra amounts being paid to help pay off your mortgage faster.
Comparing Accelerated Mortgage Payments
| Monthly | Bi-Weekly | Accelerated Bi-Weekly | |
| Mortgage Payment | $2,908 | $1,341 | $1,454 |
| Total Interest | $372,407 | $371,441 | $311,339 |
| Total Payments | $872,407 | $871,441 | $811,339 |
| Total Length | 25 years | 25 years | 21 years, 6 months |
Extra Mortgage Payments
Making regular extra mortgage payments can drastically reduce your total interest owed and allow you to pay off your mortgage earlier. To see how far this can go, let’s take a look to see what happens if you take full advantage of your lender’s double-up mortgage payment feature.
For a $500,000 mortgage with a 25-year amortization at a 5% rate, your monthly payment would be $2,908. If you make an extra payment of $2,908 every month as well, you'll have your mortgage paid off in 8 years and 11 months, with $253,728 interest savings.
You don’t have to fully double your mortgage payment each month. Instead, you could also choose to increase it by a smaller amount, such as $100. This could still lead to significant savings over the life of your mortgage.
Comparing Extra Mortgage Payments
| No Extra Payment | $100 Extra Payment | $500 Extra Payment | Double-Up Extra Payment | |
| Mortgage Payment | $2,908 | $3,008 | $3,408 | $5,816 |
| Total Interest | $372,407 | $345,467 | $269,269 | $118,679 |
| Total Payments | $872,407 | $845,467 | $769,269 | $618,679 |
| Total Length | 25 years | 23.5 years | 18.83 years | 8.92 years |
Lump-Sum Mortgage Prepayments
In addition to increasing your regular payments and increasing your payment frequency, you may also be able to make lump-sum payments which can help reduce your principal balance more quickly. This option allows you to make an additional one-time payment on top of your regular payments.
This can be helpful if you have a large amount of money that you would like to use to prepay your mortgage that might be over 100% of your regular mortgage payment amount. Instead of having to wait several months to make extra payments, you can make a lump-sum prepayment today. However, closed mortgages have strict annual prepayment limits. These limits vary by lender and by mortgage product. You can make prepayments without limits when it’s time to renew your mortgage.
For a $500,000 mortgage with a 25-year amortization at a 5% rate, if you make a lump-sum payment of $100,000 (20%), then this saves you $192,803 through interest savings and reduces your mortgage’s amortization to 17 years.
Comparing Lump-Sum Mortgage Prepayments
| No Prepayment | 5% Prepayment | 10% Prepayment | 20% Prepayment | |
| Prepayment Amount | - | $25,000 | $50,000 | $100,000 |
| Total Interest | $372,407 | $316,475 | $268,866 | $192,803 |
| Total Payments | $872,407 | $816,475 | $768,866 | $692,803 |
| Total Length | 25 years | 22.75 years | 20.67 years | 17 years |
Timing Matters
It’s important to note that the timing of your extra mortgage payments can matter. The earlier on that you can make extra mortgage payments, the better. To see how this works, let’s see what happens if you make a $50,000 prepayment after a certain period of time has already passed.
By making a $50,000 prepayment at year 5 of the mortgage instead of at year 0, you would save $30,860 less in interest savings. As your mortgage moves along, the benefit of making a $50,000 prepayment decreases.
Comparing Timing of Lump-Sum Mortgage Prepayments
| Prepayment Made At: | Year 0 | Year 5 | Year 10 | Year 15 | Year 20 |
| Total Interest | $268,866 | $299,726 | $324,809 | $345,042 | $361,260 |
| Total Payments | $768,866 | $799,726 | $824,809 | $845,042 | $361,260 |
| Total Length | 20.67 years | 21.5 years | 22.25 years | 22.83 years | 23.25 years |
Should You Make Extra Payments?
If you’re able to make extra mortgage payments, should you? Make sure to explore other ways you could use the money, such as paying off other debt with higher interest rates or even use the money to invest.
If your mortgage rate is 5% but you currently have a balance outstanding on your credit card with an interest rate of 20%, then you should pay off your credit card instead of making an extra mortgage payment.
Mortgages typically have low interest rates compared to other ways of borrowing money because the home is used as collateral. It’s possible that GIC rates may even be higher than mortgage rates. This means that making extra mortgage payments might not always be a priority when it comes to where to put your spare money.