Break cost, before the break

Know what leaving your mortgage could cost.

Compare three months’ interest with two common IRD methods, include unused prepayment room, and see whether a lower rate could earn back the cost.

Your mortgage

$
Usually your full balance if you are breaking the mortgage.
$
Only enter room your lender confirms can be used first.
%
mo
Your disclosure statement or lender can confirm the method.
%
For a term closest to the time remaining.
Standard IRD compares your contract rate with the lender’s current rate for a term closest to the time remaining.
$
Optional. Enter only costs your lender or lawyer confirms.
%
yr

Estimate, not a payout quote. Mortgage contracts use different rate definitions, rounding rules and privileges. Some lenders use posted rates; some use discounted, bond-yield or other methods. Ask your lender for a written payout statement before selling, refinancing or transferring.

Three months’ interest vs. IRD

A closed mortgage can trigger a prepayment charge when you pay more than your contract allows, break the term, transfer to another lender, or pay it out early. A closed fixed-rate mortgage commonly uses the greater of three months’ interest or an interest rate differential (IRD). A closed variable mortgage commonly uses three months’ interest. Open mortgages can usually be prepaid without a charge, but your contract controls.

Three months

Predictable: the chargeable amount multiplied by the annual mortgage rate and 3/12.

Standard IRD

Measures the rate gap over the months left. If the comparison rate is lower, IRD can dominate.

Discounted posted IRD

Applies your original discount to today’s comparable posted rate before measuring the gap.

Three months = chargeable amount × contract rate × 3 ÷ 12
Basic IRD = chargeable amount × max(contract rate − comparison rate, 0) × months left ÷ 12

The formulas are useful for planning, not for recreating every lender’s exact payout system. A lender may use the amount being prepaid rather than the full balance and may reduce it by confirmed unused privilege.

The comparison rate is where the bill changes.

“IRD” is not one universal formula. In a basic method, your lender compares your rate with its current rate for a mortgage term closest to the time remaining. In a discounted posted-rate method, it first subtracts the discount you received at origination from today’s comparable posted rate.

Original discount = original posted rate − your contract rate
Adjusted comparison rate = current comparable posted rate − original discount

One published Scotiabank schedule describes this discounted posted-rate approach. Bridgewater Bank publishes a different bond-yield method for certain mortgages: its comparison is the applicable Government of Canada bond yield plus 0.75 percentage points. These examples show why a generic calculator cannot promise an exact lender quote.

Best input: use the comparison rate from your lender’s written estimate or disclosure. If you do not know the method, run both calculator options as a range and ask which one applies.

Does the lower rate earn back the break cost?

The calculator estimates payments at your current and possible new rates using the same balance and remaining amortization. It divides the total cash cost by the monthly payment reduction for a simple break-even. This does not include tax effects, a changed amortization, future rate changes, opportunity cost, or every refinance fee.

If the simple break-even is longer than the months left in your term, the switch is unlikely to recover the entered costs through payment reduction during that term. If it is shorter, the next step is a full lender or broker quote—not an automatic yes.

Four ways to test before paying the full charge

  1. Use confirmed prepayment room first. If your contract allows it immediately before payout, lowering the chargeable balance can lower the penalty.
  2. Ask whether the mortgage can be ported. Moving the existing balance, rate and remaining term to another home may avoid a break, subject to approval and timing.
  3. Price the wait. Fewer months left can reduce IRD, so compare breaking now with waiting for renewal.
  4. Get every extra cost in writing. Check discharge, legal, appraisal, registration, cashback repayment and any replacement-mortgage credit.

Ask your lender these six questions

  1. What is my exact payout amount and how long is the quote valid?
  2. Is my charge three months’ interest, IRD, or the higher of the two?
  3. Which comparison rate and remaining term did you use?
  4. Can I use unused annual prepayment room before payout?
  5. Can I port, blend-and-extend, or receive a charge reduction with a replacement mortgage?
  6. What discharge, legal, cashback or administration costs are added?

Mortgage penalty FAQ

Why can two fixed mortgages with the same rate have different penalties?

Balance and months remaining matter, but the largest difference can be the lender’s comparison-rate method. A discounted posted-rate IRD can produce a different rate gap than a current comparable-rate or bond-yield method.

What happens when today’s comparable rate is higher?

The basic IRD falls to zero because there is no positive rate gap. If your contract charges the greater of IRD or three months’ interest, the three-month amount may apply.

Can I avoid the penalty by selling?

Selling and paying out a closed mortgage before maturity can trigger a charge. Portability may be an alternative if the contract allows it and you qualify for the replacement property and timing.

Is the unused prepayment room always deducted?

No. Timing and contract rules vary. Enter it only after the lender confirms it can be used before the payout; otherwise leave it at zero.

Why does the calculator show payment savings instead of total interest savings?

It keeps the comparison understandable and uses the same balance and amortization for both rates. A full refinance analysis should also model principal remaining, interest over the horizon, fees, and any amortization change.

Sources and methodology

Calculations and guidance are based on published Canadian lender and federal consumer-information material. Accessed October 4, 2026.

  1. Financial Consumer Agency of Canada — mortgage disclosure example: describes three months’ interest and IRD as common prepayment-charge methods.
  2. Scotiabank — Schedule of Prepayment Terms and Conditions: describes a fixed closed mortgage charge using the higher of three months’ interest or IRD, with a comparable posted rate less the original discount.
  3. Bridgewater Bank — Calculating a Prepayment Charge: publishes three-month, 3-2-1 and bond-yield IRD examples and says to check the disclosure statement or renewal agreement.
  4. Financial Consumer Agency of Canada — Renewing and Renegotiating Your Mortgage: lists penalties, administration, legal/disbursement costs and cashback repayment as items to check before breaking.
  5. Scotiabank — Understanding Mortgage Prepayments and Charges: lists contract documents to gather and notes that product-specific prepayment privileges vary.