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Prepayment privileges are the contractual right to pay down a closed mortgage faster than scheduled — through lump-sum payments, increased regular payments, or both — without triggering a prepayment penalty, up to an annual limit set by the lender.
Prepayment privileges are the built-in exception to a closed mortgage’s default rule against early repayment. They let a borrower pay extra — through lump sums, increased regular payments, or both — up to an annual limit, without triggering a prepayment penalty.
There’s no national standard limit; each lender sets its own annual allowance for both lump-sum and payment-increase privileges, and the terms can vary meaningfully between otherwise similar mortgage products. Comparing privileges is as important as comparing rate when a client plans to pay down debt aggressively.
Because a closed mortgage restricts prepayment by default, privileges are what make extra payments possible at all. Combining them with an accelerated payment frequency is one of the most common ways brokers help clients shorten their amortization.
Set by contract, not by law: each lender sets its own annual limits for lump-sum and payment-increase privileges; there is no single national standard percentage.
Closed mortgages need them: because a closed mortgage restricts prepayment by default, privileges are the built-in exception that lets a borrower pay down principal faster.
Unused privileges don’t carry over: most lenders reset the annual privilege allowance each year on the mortgage’s anniversary date, and unused room typically doesn’t roll into the next year.
Who explains them: mortgage agents (Ontario, FSRA), submortgage brokers (BC, BCFSA), mortgage associates (Alberta, RECA), and courtiers hypothécaires (Quebec, AMF) compare privilege terms across lenders, not just the rate.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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