Every scenario on this calculator assumes you're paying down debt for free, but a closed mortgage rarely lets you exceed your privileges without cost: breaking a closed mortgage contract normally triggers a prepayment penalty that FCAC says "can cost thousands of dollars," usually calculated — per FCAC's own briefing to Parliament — as the greater of three months' interest or the Interest Rate Differential (IRD). This page prices what extra payments save; it does not price what exceeding your privilege costs.
What actually triggers a penalty on this page's scenarios
The lump sum, extra monthly payment, and annual lump sum scenarios above only calculate for free if they stay inside your lender's prepayment privileges. FCAC's own guidance lists the events that trigger a penalty: paying more than your allowed additional (prepayment-privilege) amount, breaking the contract outright, transferring to another lender before the term ends, or paying off the mortgage before term end. The same page notes the one clean exception — an open mortgage can be prepaid or paid off at any time with no penalty at all, unlike the closed mortgages this calculator otherwise assumes.
How the penalty itself is calculated, when one applies
FCAC's briefing to the House Standing Committee on Finance states the penalty is "usually calculated as the greater of either three months' interest, or the Interest Rate Differential (IRD)", and that the IRD "is usually based on banks' posted rates" — rates that run higher than the discounted rate most borrowers actually contracted at, which is part of why an IRD penalty can be larger than borrowers expect. Neither this page nor FCAC's own briefing publishes a formula for converting a specific balance and rate gap into an exact IRD dollar figure; price your own penalty on the mortgage penalty calculator before treating any lump sum above as free money.
Staying inside your privilege before you commit to a scenario
Before modelling a lump sum here, FCAC recommends using your full annual prepayment privilege first, since that portion is always penalty-free by definition, and — if a penalty would still be large — considering whether to wait until your term, not your amortization, ends. Term and amortization are not the same thing: your privilege resets with each closed term (commonly up to five years), while amortization is the full payoff schedule this calculator otherwise runs against. At renewal, the balance can be paid down freely with no penalty at all, which is why the scenarios above are most reliably penalty-free when timed to a renewal rather than mid-term.
Every payoff timeline above still runs on the same rate mechanics as the rest of this site: Canadian fixed-rate mortgages compound semi-annually under the Interest Act, so the interest-saved figures reflect r = (1 + j/2)^(1/6) − 1, not a US-style monthly-compounding shortcut.
Methodology
Penalty triggers and the general IRD/3-month-interest formula are sourced to FCAC; this calculator's own interest-saved figures use the semi-annual compounding formula from the Interest Act. No dollar penalty figure is stated here — use the mortgage penalty calculator for that.
Sources
- FCAC — Breaking your mortgage contract — accessed 2026-09-21
- FCAC — Mortgage fees: reduce prepayment penalties — accessed 2026-09-21
- FCAC — Prepayment penalties (briefing package, House Standing Committee on Finance, July 7 2020) — accessed 2026-09-21
- FCAC — Mortgage term and amortization — accessed 2026-09-21
- Department of Justice Canada — Interest Act, R.S.C. 1985, c. I-15, s. 6 — accessed 2026-09-21