Mortgage Prepayment Penalty Calculator — IRD & 3-Month Interest
By Hami Tahm · Last reviewed July 2026
How much does it cost to break a mortgage in Canada?
Breaking a fixed-rate mortgage in Canada costs the greater of three months' interest or the interest rate differential (IRD). Most variable-rate mortgages charge only three months' interest. Big banks compute IRD from their posted rates, which can make the penalty several times larger than a monoline lender's. Enter your balance, rate and months remaining to estimate both methods before you break, blend or switch.
Estimate Your Mortgage Break Penalty
Your Mortgage
Big banks calculate IRD from posted rates, which usually produces a much larger penalty. Monolines use actual rates.
Estimate — check your original mortgage documents.
Estimate — check your lender's website.
Your estimated penalty
$5,250
Three months' interest is greater than the selected IRD.
| Amount | Applies to you? | |
|---|---|---|
| Three months' interest | $5,250 | Yes |
| IRD — standard method | $7,680 | No |
| IRD — posted-rate method | $1,600 | No |
Verdict: Three months' interest is the binding estimate.
Penalty ratio: 1.0× three months' interest
Standard comparison rate: 4.29%
Posted-method comparison rate: 5.05%
Save your mortgage penalty estimate
Both IRD methods, three-month interest, and your applicable estimate
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Key Takeaways
- Fixed-rate mortgages charge the greater of three months' interest or IRD; most variable-rate mortgages charge three months' interest.
- The posted-rate method used by big banks is often the biggest penalty shock because it preserves your original discount in the comparison rate.
- IRD generally shrinks as your mortgage approaches maturity because fewer months remain in the formula.
- There is no break penalty at renewal maturity, including when you switch lenders.
- This calculator is an estimate. Only your lender's written payout statement is binding.
How Mortgage Penalty Calculations Work
The formulas
Three months' interest: balance × contract rate ÷ 4
Standard IRD: balance × max(0, contract rate − current remaining-term rate) × months remaining ÷ 12
Posted-rate IRD: first subtract your original discount from today's closest posted rate, then use that comparison rate in the IRD formula.
Canadian Mortgage Penalty Rules
| Method | How it works | Default example |
|---|---|---|
| Three months' interest | Balance × contract rate ÷ 4 | $5,250 |
| IRD — standard | Uses today's actual remaining-term rate | $7,680 |
| IRD — posted rate | Uses today's posted rate less original discount | $1,600 |
With the defaults, the big-bank posted-rate IRD of $1,600 is compared with $5,250 of three-month interest; the larger amount applies.
Common Mortgage Penalty Mistakes
Assuming a fixed mortgage costs only three months' interest
A fixed big-bank mortgage can produce a much larger posted-rate IRD. Calculate both methods before relying on a refinancing quote.
Forgetting your annual prepayment privilege
Using an allowed lump sum before requesting a payout can reduce the balance used in the penalty. Model the effect with the mortgage prepayment calculator.
Comparing the penalty with one month's savings
Compare the penalty with total interest savings over the period you will actually keep the replacement mortgage, not only the first monthly payment difference.
When to Use This Calculator
Estimate the penalty before refinancing, selling during your term, accepting a blend-and-extend offer, or considering an early renewal more than four months before maturity.
Frequently Asked Questions
▶ Compare the penalty with your next mortgage decision.
Sources
- FCAC — Breaking your mortgage contract: penalty methods, lender disclosure, and alternatives to breaking.
- FCAC — Paying off your mortgage faster: prepayment privileges and charges.
- Bank of Canada — Interest rates: current Canadian rate context.
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