Published March 10, 2022 • 2 Min Read
If you’re looking to build equity in your home, save money over the life of your mortgage and be mortgage-free sooner, there are a few different ways you can apply a prepayment directly to your principal, allowing you to pay down your mortgage balance faster.
Here are three options to consider:
Make a double-up payment
This option lets you prepay between $100 and the equivalent of your regular monthly mortgage payment (of principal and interest) on any payment date.
Here’s an example of the effect of making one double-up payment per month.
$350,000 Fixed Rate Mortgage at 2.5%
| Mortgage Info | Monthly payments with a 25-year amortization | With one Double-Up payment of $100/month |
|---|---|---|
| Mortgage repaid (years) | 25 | 23 |
| Monthly payment | 1,567.80 | 1,567.80 |
| Total interest cost | $120,363 | $109,815 |
| Interest savings | N/A | $10,548 |
Because that extra $100 all goes towards your mortgage principal, you save $10,548 in interest and pay off your mortgage 2 years earlier. Imagine if you bumped that amount even a little?
Make a principal prepayment
If you have a closed mortgage, you can prepay up to 10% of your original principal amount once every twelve months. If you have an open mortgage, you can make a $500 principal prepayment as often as you like. You can also make principal prepayments of any amount at renewal time.
Here’s an example of how a 10% prepayment can make an impact on your mortgage:
$350,000 Fixed Rate Mortgage at 2.5%
| Mortgage Info | Monthly payments with a 25-year amortization | With one Double-Up payment of $100/month |
|---|---|---|
| Mortgage repaid (years) | 25 | 21yrs, 9 months |
| Monthly payment | 1,567.80 | 1,567.80 |
| Total interest cost | $120,363 | $92,940 |
| Interest savings | N/A | $27,423 |
Increase your payment amount
Once every 12 months you can increase your mortgage payment by as much as 10% without any prepayment charge. The increased amount goes directly to your principal.
Here’s an example of how a 10% increase in payment at the end of year 1 can make an impact on your mortgage:
$350,000 Fixed Rate Mortgage at 2.5%
| Mortgage Info | Monthly payments with a 25-year amortization | Effect of 10% increase in payment after year 1 |
|---|---|---|
| Mortgage repaid (years) | 25 | 22yrs, 2 months |
| Monthly payment (year 1) | 1,567.80 | 1,567.80 |
| Monthly payment (year 2 until the mortgage is paid) | $1,567.80 | $1,724.68 |
| Total interest cost | $120,363 | $105,955 |
| Interest savings | N/A | $14,408 |
Ready to pay down your mortgage faster?
An RBC Mortgage Specialist can answer any questions you may have, help you manage your mortgage and recommend mortgage options to help you reach your goals.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
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