Mortgage Prepayment Penalty Calculator
Mortgage Prepayment Penalty Calculator
Estimate the prepayment penalty for breaking your mortgage contract early.
Breaking a mortgage contract early — to refinance, sell, or switch lenders — almost always triggers a prepayment penalty, and for fixed-rate mortgages that penalty can be far larger than most homeowners expect. This calculator estimates your penalty using the same two methods Canadian lenders apply.
How This Calculator Works
For a variable-rate mortgage, the penalty is almost always three months' interest on your remaining balance at your current rate.
For a fixed-rate mortgage, lenders charge whichever is greater: three months' interest, or the interest rate differential (IRD) — the difference between your contract rate and the current rate available for your remaining term, applied to your remaining balance and remaining time left on your term. When rates have fallen significantly since you signed your mortgage, the IRD is usually the larger — and more expensive — of the two.
Frequently Asked Questions
What's the difference between the 3-month interest penalty and the IRD?
Three months' interest is a flat calculation based on your current balance and rate. The interest rate differential (IRD) compares your contract rate to today's rate for your remaining term — the bigger that gap, the larger the IRD tends to be. Lenders on fixed-rate mortgages charge whichever amount is higher.
Why do fixed-rate mortgages have bigger penalties than variable-rate mortgages?
Variable-rate mortgages are only ever subject to the three-month interest penalty, while fixed-rate mortgages can also be hit with the IRD — which is often much larger, especially if interest rates have dropped since you signed your mortgage.
Does every lender calculate the IRD the same way?
No — this is one of the biggest sources of variation. Many large Canadian banks use their own posted rate (which is often higher than the discounted rate you actually pay) to calculate the IRD, which can produce a significantly higher penalty than a simplified estimate like this one.
Is there any way to avoid a mortgage penalty?
Some lenders allow "porting" your mortgage to a new property without breaking the contract, and most mortgages allow a limited annual prepayment (often 10–20% of the original principal) without penalty. Always call your lender directly to confirm your exact options and penalty amount before deciding to break your mortgage.