Mortgage Break Penalty Calculator

When you sign a closed mortgage, you're committing to the full term. Breaking that contract — whether to refinance, sell, or pay off early — triggers a prepayment penalty. Canadian law requires lenders to disclose how they calculate this penalty, but the methods vary significantly.

For variable-rate mortgages, the penalty is always three months' interest on your outstanding balance. Straightforward, predictable, and usually not that large.

For fixed-rate mortgages, you pay the greater of three months' interest or the Interest Rate Differential (IRD). The IRD is where things get complicated — and expensive.

Major Canadian banks calculate IRD using their posted rates — the advertised rates nobody actually pays — rather than the discounted rate you actually received. This artificially deflates the "current rate" used in the IRD calculation, making the rate differential (and therefore the penalty) much larger than it should be.

Monoline lenders (non-bank lenders like First National, MCAP, and others) typically calculate IRD using your actual contracted rate, resulting in penalties that are far more reasonable. This difference can mean paying $2,000 vs $20,000 for the same remaining term and balance.