Accelerated vs Lump-Sum: Which Saves More?

How accelerated payments work

Accelerated weekly or bi-weekly means you pay half the monthly amount every two weeks, or one quarter every week. Because there are 52 weeks in a year, you sneak in the equivalent of one extra monthly payment every 12 months—13 instead of 12. That extra slice goes straight to principal, no interest attached.

The 13-month trick

Lenders still show 12 months on your annual statement, but you’ve actually pumped 13 months of cash in. On a $400 000 mortgage at 4 %, that alone shaves about 3.5 years off the 25-year clock and saves roughly $36 000 in interest.

Hidden boost to equity

Every extra dollar paid today eliminates the last dollar of interest you would have owed. Accelerated timing keeps the interest clock paused more often, so equity grows faster even if rates rise later.

How lump-sum prepayments work

Most closed mortgages let you throw down 10 %–20 % of the original principal once per calendar year without fees. The payment hits principal the day it arrives, so interest is re-calculated immediately.

Calendar-year rules

The clock resets every January 1. Miss the window and the room disappears; you can’t roll it forward.

Minimum amounts

Many lenders demand at least $100 per lump. Some insist on $500 or 1 % of balance—check your paperwork.

When it makes sense / When it doesn’t

Accelerated fits if:

• Paycheque arrives every two weeks
• Budget feels tight but steady
• You like “set it and forget it”

Skip accelerated if:

• Commission income swings wide
• High-interest debt lives elsewhere
• Bank account dips below $500 regularly

Lump-sum fits if:

• Annual bonus or tax refund is reliable
• You hate tinkering with payment size
• You want maximum flexibility

Skip lump-sum if:

• Cash buffer is under three months’ expenses
• You might need the money next month
• Penalties exceed interest savings (rare but real)

Pros & cons of each tactic

Accelerated pros

• Automatic, painless
• Shrinks amortization quietly
• No need to remember deadlines

Accelerated cons

• Permanent budget bump
• Hard to reverse mid-term
• Slight cash-flow squeeze

Lump-sum pros

• One-time, voluntary
• Big interest kill in one shot
• Keeps regular payments low

Lump-sum cons

• Requires discipline to save chunk
• Annual deadline pressure
• Lost opportunity if rates rise elsewhere

Quick checklists

Eligibility quick-check

☐ Mortgage is closed (open mortgages already allow unlimited)
☐ Pre-payment privilege ≥10 %
☐ No past-due payments
☐ Property not listed for sale

Docs to prepare

• Latest annual statement
• Online banking login for principal balance
• Bonus letter or Notice of Assessment (for lump-sum timing)
• Void cheque if paying from external account

Common mistakes to avoid

• Paying lump-sum after year-end deadline
• Forgetting to specify “principal only”
• Overstretching cash buffer
• Ignoring higher-interest debt first
• Assuming both spouses must sign (only one does in most cases)

Myth-Buster box

Myth: Accelerated weekly saves way more than bi-weekly.
Fact: Difference is tiny—both give 13 months.

Myth: Lump-sum reduces next payment.
Fact: Payment stays same; amortization shortens.

Myth: You can roll unused prepayment room.
Fact: Calendar year ends; room resets.

Myth: Open mortgages are always cheaper.
Fact: Higher rate usually wipes out freedom benefit.

Myth: Extra payments are tax-deductible.
Fact: Not in Canada—your principal residence.