Prepayment restrictions are the fundamental difference between open and closed mortgages.
Despite the restrictions on closed mortgages, they do allow some prepayment privileges. Here’s a quick overview:
Learn more about open vs. closed mortgages.
If you’ve managed to save some money, got a raise, won the lottery or experienced any other positive change in your financial position, you might be tempted to accelerate your mortgage payments.
Before doing so, ask yourself, “Is my money better spent elsewhere?”
To answer this question, people compare their mortgage rate to the after-tax return they can earn by deploying their cash elsewhere.
For example, if your mortgage rate is 3.00% and you have a credit card balance being charged 20% interest, paying down the credit card first is clearly a better use of your money. Or perhaps you believe that you can earn more than three percent by investing your money.
The higher the interest rate on your mortgage, the more it makes sense to exercise your prepayment privileges and pay it down sooner.
Are you considering pre-paying your mortgage? Use the Rates.ca Mortgage Penalty Calculator to find out how much it will cost.