I want to calculate the optimal way to apply a $100,000 inheritance to my mortgage and am having difficulty figuring this out. I am in Canada and if I apply all of the money on the mortgage ($170,000 remaining at 3.186%) now I pay a 2.15% penalty on the funds. Alternatively, on the anniversary date every January I can prepay up to $40,000 without a penalty. My local savings rate is 0.8%.
Can you help me figure out if I should pay the $2,150 penalty now and benefit from much lower interest payments immediately or if I should hold onto the $100,000 for now and do $40,000 during the next two January's and $20,000 on the third? I am already doubling my monthly payments so I can't increase those.