Should I prepay my mortgage or invest? (Canada)

In Canada, whether to prepay your mortgage or invest is a question for your financial advisor, and any tax side is for your accountant. The answer depends on returns we do not forecast. What we can show is the mortgage half. A prepayment saves the interest on that money for as long as it would have been owed. The prepayment has to fit within your prepayment privileges to avoid a penalty. Once the money is paid in, you generally cannot take the money back out without borrowing again.

What a prepayment does on the mortgage side

A prepayment is money you pay toward the mortgage beyond your regular payments, either as a lump sum or by increasing the payment. A prepayment generally goes straight to principal, the amount you owe. On many mortgages the regular payment stays the same afterwards. More of each payment then goes to principal, and the mortgage is paid off sooner.

Here is an illustrative way to size the saving, not a quote. Every $10,000 prepaid saves about $100 a year of interest for each percentage point of your mortgage rate. The saving lasts for as long as the balance would otherwise have been owed. Multiply by your own rate from your statement.

A worked example of a lump-sum prepayment

Illustrative, not a quote. You prepay $10,000 with four years left in your term.

1. Interest saved during the term: $10,000 × 0.01 × 4 years = about $400 for each percentage point of your rate. Multiply by your rate to get your own figure.
2. A little more in practice: if your payment stays the same, the interest you no longer pay also goes to principal, so the saving compounds slightly.
3. After the term: the lower balance carries into every renewal. The saving continues across the rest of your amortization (the total time to pay off the loan), unless you borrow the money again.

The prepayment savings tool runs this with your own balance and rate, including how much sooner the mortgage is paid off.

Privileges, and the penalty above them

Your contract limits how much you can prepay. You may only be able to increase payments by a certain amount each year and put a limited amount toward the mortgage as a lump sum, and paying more than the maximum means a prepayment penalty (source: Financial Consumer Agency of Canada, checked October 2026).

Federally regulated lenders give you yearly information on your privileges and the amount you can prepay without a charge (source: Financial Consumer Agency of Canada, Code of Conduct, checked October 2026). Ask whether unused room carries over to the next year; on many mortgages it does not.

At the end of a term there is no prepayment penalty. Renewal is the one point where you can pay down any amount. Prepayment privileges sets out the rule in full.

Prepaid money is no longer within reach

A prepayment turns cash into home equity. Getting the money back means borrowing it again through a refinance or a home equity line of credit (HELOC). Each route is subject to lender approval and, generally, to the stress test (source: Department of Finance and OSFI, checked October 2026).

A HELOC is generally a demand loan, so the lender can review or reduce the limit. Some mortgages are set up so that principal you repay becomes available to borrow again; see what a readvanceable mortgage is.

Access to cash is part of the advisor's question: how much cash you want within reach, not just which use of the money earns more.

What to bring to your advisor

Bring your balance, your rate, the time left in your term and how much prepayment room you have left this year. If you are thinking of paying more than the privilege, bring a written penalty statement too. Those are the mortgage numbers the comparison needs; the return side and the tax side belong to your advisor and your accountant.

What to do next

See what a lump sum or a higher payment saves with the prepayment savings tool. The tool's results are estimates only, not an offer or advice. Or use our call-back form, and we will go through your privileges and penalty before you talk to your advisor.