Licensed in Ontario · Helping clients across the province

Mortgage penalty calculator

Thinking about breaking your mortgage early to refinance, sell or switch? Estimate your prepayment penalty: three months' interest or the interest rate differential (IRD), and see whether breaking could make sense.

FSRA Brokerage Lic. #13812 Licensed in Ontario · clients anywhere in the province English · Hindi · Punjabi

Your mortgage

Use the numbers from your latest mortgage statement or your lender's website.

Mortgage balance

Your interest rate

Months left in your term

Count from today to your maturity date (e.g. 2.5 years = 30 months).

How does your lender calculate the IRD?

Posted rate when you signed (your term)

Today's posted rate (term closest to time left)

Not sure? Check your mortgage contract or ask your lender which method applies. With the posted-rate method, your original discount (posted rate minus your rate) is subtracted from today's posted rate.

Optional: prepayment privilege

Annual lump-sum allowance

Apply it before breaking?

Some lenders let you make your yearly prepayment first, which lowers the balance the penalty is charged on. Unused room usually doesn't carry over.

Optional: is breaking worth it?

New rate you're considering

Other costs (legal, discharge, appraisal)

Estimated prepayment penalty

Three months' interest$0

Interest rate differential (IRD)$0

Balance the penalty is charged on$0

Comparison rate used for IRD0.00%

Rate difference0.00%

Estimate only, for illustration. Your lender's calculation, as set out in your mortgage contract, is what applies, and it may use different rates, days or rounding. Rates entered are examples you choose, not rate offers. Ask your lender for an exact penalty quote before making a decision. Any new mortgage is subject to lender approval (OAC).

Review my numbers with Sanmeet

How it works

How mortgage prepayment penalties are calculated

Breaking a closed mortgage before the end of its term usually means paying a prepayment penalty. Here's how the two common methods work.

Three months' interest

Balance × your rate × 3 ÷ 12

Used for most variable-rate mortgages, and as the minimum for most fixed-rate mortgages. Example: $450,000 × 5.00% × 3 ÷ 12 = $5,625.

Interest rate differential (IRD)

Balance × (your rate − comparison rate) × months left ÷ 12

Used for most fixed-rate mortgages when it's higher than three months' interest. Example: $450,000 × (5.00% − 4.00%) × 30 ÷ 12 = $11,250.

Posted-rate method: if you signed at 5.00% when the posted rate was 6.50%, your discount was 1.50%. If today's posted rate for the time left is 5.50%, the comparison rate is 5.50% − 1.50% = 4.00%. Examples are hypothetical, not rate offers.

Your options

Ways to reduce or avoid a penalty

Wait for maturity

At the end of your term you can usually switch or pay off without a prepayment penalty. If maturity is close, waiting may cost less.

Use prepayment privileges

Making your annual lump-sum prepayment first may lower the balance the penalty is charged on, if your lender allows it.

Port your mortgage

Moving? Many mortgages can be transferred to a new home, keeping your rate and avoiding the penalty, subject to approval.

Blend and extend

Some lenders let you blend your current rate with today's rate into a new term instead of charging a penalty.

Mortgage assumption

If you're selling, a qualified buyer may be able to take over your mortgage, with the lender's approval.

Compare before you break

I can review your penalty quote and compare the total cost of breaking against your other options. Learn about refinancing →

FAQ

Mortgage penalty questions

How is a mortgage prepayment penalty calculated?

For most closed variable-rate mortgages it is three months' interest. For most closed fixed-rate mortgages it is the greater of three months' interest or the interest rate differential (IRD). Each lender sets its own method in your mortgage contract, so the exact amount can differ from this estimate.

What is the interest rate differential (IRD)?

The IRD compares your mortgage rate with a rate the lender could charge today for the time left on your term, then applies the difference to your balance for the months remaining. When rates have dropped since you signed, the IRD is usually larger than three months' interest.

Why can penalties be higher with some lenders?

Some lenders, including many large banks, calculate the IRD using posted rates minus the discount you received when you signed. That can produce a lower comparison rate and a bigger IRD than lenders that compare against their current contract rates.

Do I pay a penalty at renewal?

No. At the end of your term (maturity) you can usually pay off the mortgage or switch lenders without a prepayment penalty. Discharge, legal or other fees may still apply.

How can I reduce or avoid a penalty?

Options can include waiting until maturity, using your annual prepayment privileges first, porting the mortgage to a new home, a blend-and-extend with your current lender, or having a buyer assume the mortgage. Whether these are available depends on your contract and lender approval.

How do I get my exact penalty?

Ask your lender for a penalty quote or payout statement. Lenders regulated by the federal government provide penalty information and calculators. I can help you review the number and compare it with your options.

More tools: mortgage calculators · mortgage glossary · FCAC: mortgage prepayment penalties

Important: General information only, not financial, legal or tax advice. All mortgages are subject to lender approval (OAC); rates, programs and rules change without notice. Penalty estimates are illustrations based on the information you enter and common calculation methods; they are not a quote, and your lender's figure applies. Sanmeet Singh is licensed in Ontario and can help homeowners anywhere in the province review their options.