Additional Payment Privilege

An Additional Payment Privilege is a contractual clause in a closed mortgage allowing the borrower to make extra payments—either lump-sum or increased regular installments—each year without incurring a prepayment penalty, up to a stated percentage of the original principal (commonly 10–20% as of 2026-07-27 — verify current). The specific terms are set out in the mortgage commitment letter and vary by lender. Verify your mortgage contract and current lender policies with a BC lawyer or notary before acting.

No BC statute prescribes the existence, percentage limits, or terms of an Additional Payment Privilege; it is a contractual feature offered by lenders and governed by the mortgage agreement itself. Mortgages in BC are private contracts subject to general contract law and the lender's policies. Verify the exact terms in your commitment letter and mortgage documents with a BC lawyer or notary before relying on any privilege.

Yes, making extra payments under an Additional Payment Privilege reduces the outstanding principal, which in turn shortens the amortization period and reduces the total interest paid over the life of the mortgage. The actual impact depends on the amount prepaid, the interest rate, and the remaining term. Verify the calculation and confirm there are no hidden fees with your lender or a licensed mortgage professional before acting.

An Additional Payment Privilege is a feature typically associated with closed mortgages, because open mortgages generally allow unlimited prepayment at any time without penalty. The contractual terms of your specific mortgage—whether open or closed—determine what prepayment rights you have. Verify the prepayment terms in your commitment letter and mortgage contract with a BC lawyer, notary, or licensed mortgage professional before acting.

The percentage limit (commonly 10–20% of the original principal as of 2026-07-27 — verify current) is set out in your mortgage commitment letter and the mortgage agreement itself; it is not standardized by law. Each lender sets its own policy. Review your mortgage documents carefully and verify the current annual limit, any blackout periods, and the calculation method with your lender or a BC lawyer or notary before making an additional payment.

Most lenders apply lump-sum additional payments directly to principal, but the exact application (immediate vs. next payment date, rounding, allocation) depends on your mortgage contract and the lender's administrative policies. Some mortgages require you to specify that a payment is an additional payment under the privilege. Verify the application process and confirm receipt in writing with your lender before and after making the payment to avoid misapplication.

No. Mortgage principal payments (including additional payments under an Additional Payment Privilege) are not deductible for income tax purposes in Canada; only interest on investment loans may be deductible in certain circumstances under the federal Income Tax Act. Using the privilege reduces your interest cost but does not trigger any BC Property Transfer Tax Act (RSBC 1996, c. 378), BC Home Owner Grant Act, or other provincial tax benefit. Verify your personal tax situation with a licensed tax professional before acting.

Yes. Refinancing typically involves discharging the existing mortgage and registering a new one, and the new mortgage may have different prepayment privileges (or none) depending on the lender and product chosen. Any unused Additional Payment Privilege from the prior mortgage does not carry forward. Verify the prepayment terms of any new mortgage commitment and compare them to your current mortgage with a BC mortgage broker, lawyer, or notary before refinancing.

The reset period—whether calendar year (January 1 – December 31) or mortgage anniversary year (12 months from the advance date)—is defined in your mortgage commitment letter and varies by lender. Some lenders also impose blackout periods or pro-rate the privilege in partial years. Verify the exact reset schedule, any blackout dates, and the calculation method in your mortgage documents with your lender or a BC lawyer or notary before acting.

Payments that exceed the contractual Additional Payment Privilege limit may trigger a prepayment penalty (often calculated as the greater of three months' interest or an interest rate differential, as of 2026-07-27 — verify current), depending on your mortgage terms. The exact penalty calculation and any exceptions are set out in your mortgage agreement. Verify your current year-to-date prepayment total and the penalty formula with your lender or a BC lawyer or notary before making any payment that might exceed the limit.