Mortgage Penalty Calculator (Canada)
Last updated
Estimate the penalty for breaking a Canadian mortgage early. Computes the textbook formula — greater of 3 months' interest or Interest Rate Differential (IRD) for fixed-rate, 3 months' interest for variable. Real penalty depends on your lender's specific convention (banks use posted rates; monolines use discount rates) — always request a discharge statement.
Breaking a fixed-rate Canadian mortgage triggers a prepayment penalty. Two formulas apply, and the lender always charges the LARGER of the two:
- 3 months' interest: three months of interest on your current balance at your contract rate. The floor — every fixed-rate penalty is at least this much.
- Interest Rate Differential (IRD): the lender's loss from refunding your balance at a lower current rate. Higher when rates have fallen and you have substantial term remaining.
Variable-rate and open mortgages use 3 months' interest only — no IRD applies. The IRD calculation depends entirely on which "comparison rate" the lender chooses. Big-bank lenders compare against posted rates (much higher than the rate you actually pay), which produces materially larger penalties than monoline lenders who compare against current discount rates.
How this calculator works
3MI = balance × rate × 3 ÷ 12
IRD = (originalRate − comparisonRate) × balance × monthsLeft ÷ 12
penalty = max(3MI, IRD) for fixed; penalty = 3MI for variable.
Sources: FCAC — Breaking your mortgage contract early; CMHC prepayment guide.
Worked example
$400,000 balance, 4.99% fixed contract rate, 24 months remaining, comparison rate 3.99%.
- 3 months' interest: $400,000 × 4.99% × 3/12 =
$4,990 - IRD: (4.99% − 3.99%) × $400,000 × 24/12 =
$8,000 - Penalty:
max($4,990, $8,000) = $8,000(IRD wins)
Same scenario but variable rate: penalty = $4,990 (3 months' interest only).
Same scenario but a big-bank borrower whose lender uses a 5.79%
posted rate as the contract rate baseline (instead of 4.99%) for
IRD purposes: IRD = (5.79% − 3.99%) × $400,000 × 24/12 =
$14,400. The posted-rate convention can roughly
double the penalty on the same loan.
Frequently asked questions
Why is my real penalty different from this calculator's estimate?
Lenders use different conventions for the IRD comparison rate. Big-bank lenders (RBC, TD, BMO, CIBC, Scotia, NBC) compare against POSTED rates — typically 1–2 percentage points higher than the rate you actually contracted at. Monoline lenders (MCAP, First National, Merix, Manulife One, etc.) usually compare against current discount rates. The difference can be thousands of dollars on the same balance and term. The calculator computes whatever rate you enter; ask your lender which convention applies and what their current comparison rate is for your remaining term.
When does the IRD beat 3 months' interest?
When (originalRate − comparisonRate) × monthsLeft / 12 > originalRate / 4. Roughly: when rates have dropped meaningfully since you took the mortgage AND you have substantial term remaining. Example: 5-year fixed at 5.5%, 36 months left, comparison rate 3.5%. IRD = 2% × balance × 3 = 6% of balance. 3 months' interest = 5.5% / 4 = 1.375% of balance. IRD wins by ~4× in that scenario.
Are there other costs when breaking a mortgage?
Yes. The penalty is the largest line, but you'll also typically pay: discharge / mortgage assignment fees ($300–$500 per province), reinvestment fees that some lenders levy on top of the penalty, legal fees if you're moving the mortgage to a new lender, and possibly a portion of any unamortized cashback or appraisal subsidy you received at signing. The Refinance Calculator lets you model the full picture including all closing costs.
Can I avoid the penalty by porting the mortgage?
Most Canadian mortgages are 'portable' — you move the existing mortgage to a new property without breaking it. If the new property is more expensive and you need a bigger mortgage, lenders typically blend the existing rate with their current rate on the increment ('blend and extend' or 'blend and increase'). Porting avoids the penalty but locks you into the same lender. If the new property is cheaper or no purchase happens within 30–120 days (lender-specific), porting is usually unavailable.
Sources
Every figure on this page traces back to a primary Canadian authority. See the complete sources index for the master list.
Verified against FCAC mortgage prepayment guidance and major-bank online penalty calculators (RBC, TD, BMO, CIBC, Scotia) on .
Important
This calculator is for informational purposes only. It is not financial, tax, mortgage, or legal advice. Tax rates, mortgage rules, and contribution limits change. Always verify current rules with the relevant Canadian authority and consult a licensed professional before making financial decisions.