One of the people behind MortgageSkip renewed a mortgage this year. The name is left off and the numbers are rounded, but the shape of it is real, and it's the shape a lot of Canadian renewals have right now: a rate locked in during the pandemic dip, coming up against a rate that is more than double.
The short version: a 20% lump sum absorbed the entire payment shock, switching to weekly payments will claw back a few years, and the calendar turned out to matter more than expected.
The renewal
The mortgage came up for renewal with about $520,000 left and 20 years of amortization remaining. The old five-year fixed had been signed in 2021 at around 1.80%. The new five-year fixed came in at 3.90%.
On the same schedule, that's the payment shock everyone has been writing about:
| At 1.80% | At 3.90% | Difference | |
|---|---|---|---|
| Monthly payment | $2,580 | $3,115 | $535 a month, up 21% |
| Interest over the 5-year term | $41,716 | $91,839 | $50,124 |
These are estimates using the semi-annual compounding Canadian fixed-rate mortgages use. Nothing about the new rate was unusual; 3.90% is a perfectly ordinary number. The old one was the anomaly, and its five years were up.
The lump sum
The renewal came with an option: put down 20% of the balance, $104,000, as a prepayment. Most Canadian mortgages allow a lump sum of 10% to 20% of the original amount each year without penalty, and renewal is a natural moment to use it.
What decides how much it helps is the choice that comes after the lump sum. The lender will usually offer to recalculate your payment on the smaller balance. You can also decline and keep paying the higher amount.
| $104,000 lump sum at renewal | Let the payment drop | Keep the $3,115 payment |
|---|---|---|
| Monthly payment | $2,492 | $3,115 |
| Interest over the 5-year term | $73,472 | $69,684 |
| Interest over the remaining amortization | $182,125 | $128,916 |
| Mortgage paid off in | 20 years | 14.6 years |
| Balance after five years | $339,940 | $298,770 |
Here's the part worth noticing. Re-amortized, the new payment at 3.90% is $2,492 a month, which is less than the $2,580 that was being paid at 1.80%. A 20% lump sum swallowed a 2.1-point rate increase whole. The household budget didn't feel the renewal at all.
Keeping the full payment instead saves another $53,000 over the life of the mortgage and clears it more than five years early. That's the bigger number, but it means living with the $535-a-month increase. Neither is wrong; one buys time, the other buys breathing room. What's not obvious until you see the table is that the lump sum only delivers the bigger saving if the payment stays where it was.
Weekly payments
The renewal also switched from monthly to accelerated weekly payments. On the $416,000 balance after the lump sum, that's the re-amortized monthly payment divided by four, paid every week: about $623.
| On $416,000 at 3.90% | Monthly | Accelerated weekly |
|---|---|---|
| Payment | $2,492 a month | $623 a week |
| Paid per year | $29,906 | $32,487 |
| Interest over the remaining amortization | $182,125 | $158,258 |
| Paid off in | 20 years | 17.7 years |
The saving is about $24,000 and two years and four months, and it's worth being clear about where it comes from. There are 52 weeks in a year, not 48, so four weekly payments a month adds up to thirteen months' worth of payments instead of twelve. The extra month goes straight to principal. It's the amount that does the work, not the frequency; a plain weekly payment, calculated to match the monthly total, pays off in the same 20 years and saves about $700.
Accelerated weekly suited this household because the pay cheque is weekly. If yours is biweekly, accelerated biweekly does the same thing. We wrote up the whole comparison in Weekly, biweekly or monthly.
The January question
The $104,000 had been sitting in a TFSA. Rather than moving it at renewal, the question was whether to wait for 1 January, because two things about that money reset on that date:
- The prepayment privilege. The 20% allowance is per calendar year. Use it in July and it's gone until January. Use it on 31 December and again in early January, and you've put down 40% in a few days, penalty-free.
- TFSA contribution room. Money withdrawn from a TFSA gets its room back, but only on 1 January of the following year. This is the one that catches people: withdraw on 31 December and the room is back the next morning; withdraw on 2 January and it's gone for a full year. If the plan is to rebuild the TFSA, the withdrawal has to happen before year end.
What does waiting cost? The money stays in the TFSA earning something, while the mortgage charges 3.90% on a balance that is $104,000 higher than it needs to be for six months.
| $104,000 held in a TFSA for 6 months at | It grows to | Extra lifetime interest vs. prepaying at renewal |
|---|---|---|
| 3.0% (a savings rate) | $105,548 | about $2,400 |
| 4.0% (a GIC rate) | $106,060 | about $2,000 |
| 5.0% | $106,568 | about $1,700 |
On the money itself it's nearly a wash: six months of mortgage interest on $104,000 at 3.90% is about $2,030, and six months in a TFSA at 4% earns about $2,060, tax-free. The small lifetime cost comes from the balance not shrinking for six months.
Call it $2,000 over the life of a $520,000 mortgage. In exchange, waiting buys three things:
- An emergency fund for the rest of the year. A lump sum paid to a lender is gone; the same money in a TFSA is a phone call away. For six months, this household had $104,000 available if something went wrong, at a cost of roughly $2,000 spread over fifteen years.
- The option not to prepay at all. Come December, the choice is still open: make the lump sum, or keep the money rolling as an emergency fund for another year and make a smaller prepayment. Nothing about waiting commits you.
- Two calendar years of privilege back to back, and the TFSA room back on 1 January rather than a year later, provided the withdrawal happens before 31 December.
That's the calendar effect in one sentence: a lump sum on 31 December is worth almost the same as one in July, keeps the money available in the meantime, and gets the TFSA room back the next day.
The question we didn't answer
There's a bigger version of this: whether to prepay at all, or leave the money invested in the TFSA for the long run. It comes down to comparing a guaranteed, tax-free 3.90% (what prepaying returns, in the form of interest you don't pay) against whatever the TFSA might earn, which is not guaranteed.
At 3.90%, a GIC inside a TFSA is roughly a tie. Anything with more risk might do better or worse. That's a decision about your own risk tolerance, timeline and sleep, and not one a blog post can make for you. What we can say is that the arithmetic above is the part people usually skip, and it's the part that's actually knowable.
The fine print
- All figures are estimates. Your lender's calculation, your exact balance and your dates will differ.
- Prepayment above the privilege in your contract triggers a penalty. Check the prepayment section before moving money.
- Some lenders count the privilege by anniversary date rather than calendar year. Ask which yours uses; it changes the timing entirely.
- TFSA room rules are set by the CRA and can change. The "withdraw before year end" point is how they work today.
- This is one renewal, rounded. It isn't advice, and it isn't a recommendation to prepay, to wait, or to invest.
If you want to run your own numbers, the calculator handles the break-versus-stay comparison, and the rates page shows what we currently estimate a renewal rate to be and where that figure comes from.