What your mortgage payment is really doing
Each mortgage payment is split between two things:
- Principal — the amount you borrowed
- Interest — the cost of borrowing that money
Early in the mortgage, a larger share of each payment goes to interest. Over time, more of each payment goes toward reducing the principal.
Why payments change over time
As your balance slowly shrinks, the interest portion of each payment decreases. This is why progress can feel slow at first, then speed up later in the mortgage.
What is a mortgage prepayment?
A prepayment is any money you put toward the mortgage above your required payment. This could include:
- Adding a small extra amount each month
- Making lump-sum payments when cash allows
- Increasing your regular payment if your lender permits
Most lenders apply prepayments directly to your principal — which reduces future interest.
How much difference can prepayments make?
Even small, steady extra payments can:
- Shorten your mortgage by years
- Save thousands of dollars in interest
The impact depends on your rate, balance, and remaining time.
Mortgage prepayments vs investing
Many families wonder whether extra cash should go toward the mortgage, investing, or savings for kids.
- Mortgage prepayments offer a guaranteed return equal to your interest rate
- Investing may offer higher long-term returns, but with volatility
- RESP contributions can include government grants
There’s no single right answer — it depends on rates, income, and comfort level.
A simple starting approach
- Keep regular mortgage payments comfortable
- Contribute something steady to RESP and/or RRSP
- Use part of any surplus to test extra mortgage payments
Want to explore this with your own numbers?
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See how payments, rates, and prepayments affect your timeline using the Mortgage Planner and Mortgage Booster.
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