How mortgage anniversaries can help you cut down on your interest payments

By: Alexandra Bosanac on October 28, 2025

This article is updated from a previous version originally published on 2023-11-07.

It can take a long time to pay off a mortgage. For the first decade or so, most of your monthly payments go towards interest rather than the principal. It’s a little soul-crushing if you spend too long thinking about it.

But there’s often one day each year when you can make a lump sum payment that goes directly toward the principal balance. This can potentially shave off a ton of time off the total life of your mortgage. This opportunity usually happens on your ‘mortgage anniversary’ or the date you first entered into your mortgage agreement.

While some lenders offer this extra payment option, it’s not open to everyone. Here’s a look at when you should take advantage of this hallowed day— and when you shouldn’t.

Your payments stay the same, but less will go to interest

Making a lump sum payment won’t lower your scheduled monthly mortgage payments, but that isn’t the primary goal.

Your payments are based on an amortization schedule — the set timeline for paying off both the interest and principal on your loan. While this payment schedule remains fixed, a lump sum contribution immediately changes how your payments are applied.

More of each subsequent payment will go toward the principal and less toward interest.

“You end up lowering the balance and the amount of interest over time, and you’re able to pay the mortgage off in an accelerated time period,” says Fred Babbie, a mortgage broker at SafeBridge Financial.

Learn more: Want to pay off your mortgage sooner? Try accelerated payments

Understanding prepayment privileges

Mortgage lenders that offer prepayment privileges typically allow borrowers to make a lump sum payment of up to 20% (of the original principal amount) each year.

Let’s look at an example. Say you’ve qualified for a $400,000 mortgage at a rate of 5.14% on a 25-year amortization schedule. That means your monthly payments would be $2,358.40.

In this scenario, a 20% lump sum payment would be $80,000. If you were to make that payment every year, you could conceivably pay off their mortgage before the five-year term is even up. Not only would you have paid off your mortgage, but you’d also pay substantially less interest: only $16,790.84 versus $96,308.20.

So, if you receive a financial windfall like an inheritance, can you wipe out a large portion of your mortgage in one day?

You can, but paying off your mortgage too early may come with hefty penalties. With variable-rate mortgages, for instance, a common penalty is three months’ worth of interest charges.

The ability to make an extra payment on your mortgage is a feature known as a "prepayment privilege." If you want this option, you must request it when negotiating your mortgage agreement.

“Some banks will allow you to pay as much as 20% as little as 5%,” says Babbie. “It’s not standard across the board. It depends on the product.”

It’s also important to read and understand your lender’s guidelines around prepayment privileges, he adds.

What kind of lenders offer prepayment privilege as an option?

While most lenders allow you to negotiate extra payment privileges, these options are offered mostly by the major banks.

Beyond making a single lump-sum payment, you may also have the option to increase your regular monthly payments, often by up to 20%. This also helps you pay down your principal faster and save a significant amount on interest over the life of your loan.

So, why don't all lenders offer this flexibility? Lenders build their business models on the predictable, long-term interest income from mortgages. Allowing borrowers to break these contracts early can disrupt this income stream and increase administrative costs.

However, major banks can often afford to offer this flexibility because they have a wide range of other products and services to offset potential losses from early mortgage payoffs. Offering prepayment privileges is also an effective way for them to attract and retain clients who value financial flexibility.

“A lot of what banks offer, it’s not just mortgages — they offer numerous other products as well, like lines of credit,” says Babbie. “Plus, the more somebody pays off on their home, they use it to take out a home equity line of credit, so other ancillary business… will come from there.”

In contrast, private, sub-prime lenders are the least likely to offer extra payments as an option, says Babbie. Their business models are often more specialized and dependent on the full interest yield from each loan, making them less able to absorb the costs associated with early repayment.

When should you not make extra payments?

Paying off your mortgage early isn't always a clear financial win. Sometimes, you could earn more by investing your extra cash than you would save on mortgage interest. It's a matter of comparing market trends and interest rates to see what's best for your financial situation.

However, there is one scenario where you should almost always avoid making extra mortgage payments: when you have other high-interest debt. For example, if you have credit card debt, tackle that first.

“If you have unsecured credit, always pay it off first. Not many investments are going to make 19%,” says Babbie, referring to the typical interest rate charged by credit card lenders.

“Otherwise, you’re saving on one end and spending on the other.”

By using your mortgage anniversary as a strategic opportunity to make extra payments, you can reduce your interest costs and move closer to owning your home outright, faster. Talk to your mortgage broker to explore your options.