Mortgage Break Penalty Calculator — Is It Worth Breaking Your Mortgage?
Breaking a Canadian mortgage early can cost $5,000–$30,000+. Fixed-rate mortgages face the greater of 3-month interest or the Interest Rate Differential (IRD) — and big bank IRD calculations can be 4–8× more expensive than monolines. Know your penalty before you decide.
What you'll need
- Current outstanding mortgage balance
- Your contract interest rate
- Months remaining in your current term
- Whether your mortgage is fixed or variable rate
- Whether your lender is a big bank or monoline / credit union
How it works
Enter your mortgage details
Outstanding balance, contract interest rate, and months remaining in your current term.
Select mortgage type and lender
Variable rate = 3-month interest only. Fixed rate = greater of 3-month interest or IRD. Big banks use posted rates (more punitive).
See your penalty and break-even
The calculator shows your estimated penalty, which method applies, and how many months of lower payments it takes to recover the cost.
Mortgage Break Penalty Examples ($500,000 Balance, 3 Yrs Left)
| Rate Type | Lender Type | 3-Month Interest | IRD Penalty | Penalty Applied |
|---|---|---|---|---|
| Variable | Big bank | $5,900 | N/A | $5,900 |
| Fixed 5.49% | Monoline | $5,900 | $4,200 | $5,900 |
| Fixed 5.49% | Big bank | $5,900 | $18,000 | $18,000 |
| Fixed 5.49% | Big bank (1 yr left) | $5,900 | $6,000 | $6,000 |
Big bank IRD calculations use posted rates at origination — the "discount" you received is subtracted, inflating the penalty. This is legal but opaque.
Frequently asked questions
How is the mortgage break penalty calculated in Canada?
For variable-rate mortgages, the penalty is 3 months' interest on the outstanding balance. For fixed-rate mortgages, the penalty is the greater of 3 months' interest OR the Interest Rate Differential (IRD). IRD is the difference between your contract rate and the lender's current rate for the remaining term, multiplied by the outstanding balance and the remaining time.
Why are big bank mortgage penalties so much higher?
Big banks (RBC, TD, BMO, Scotiabank, CIBC) calculate IRD using their posted rates at origination, not the discounted rate you actually received. Since posted rates are much higher than the discounted rate, the IRD calculation produces a much larger penalty — sometimes 4–8× what a monoline lender would charge for the same mortgage.
How can I avoid a large mortgage penalty in Canada?
Strategies include: choosing a variable-rate mortgage (penalty capped at 3 months' interest); choosing a monoline or credit union lender (smaller IRD calculation); waiting until the last 3–6 months of your term when penalties shrink; or making a prepayment (usually up to 10–20% per year is penalty-free) to reduce the balance before breaking.
When does it make sense to break my mortgage early?
Breaking makes sense when the monthly savings from a lower rate exceed the penalty within the remaining term. For example, if your penalty is $12,000 and you have 36 months left, you need to save at least $333/month to break even. Beyond the break-even point, every month saves money.
Is the mortgage break penalty tax-deductible in Canada?
The penalty may be tax-deductible if you are breaking the mortgage on a rental property and replacing it with another mortgage for the same property. For a principal residence, the penalty is generally not tax-deductible. Consult a tax advisor for your specific situation.
Authoritative resources
Find out if breaking your mortgage makes financial sense.
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