About this calculator
Almost every closed Canadian mortgage can be broken — for a price set by a formula your lender chose. Variable-rate mortgages are simple: three months' interest on the balance. Fixed-rate mortgages charge the greater of three months' interest or the Interest Rate Differential, and the IRD is where the five-figure surprises live. The Financial Consumer Agency of Canada requires lenders to disclose their method and provides its own estimator, but the inputs are scattered across your mortgage documents, which is why penalties are so often underestimated.
How the standard IRD works: your lender compares your contract rate against the rate it could charge today for the time you have left — specifically, its current posted rate for the term closest to your remaining term, reduced by any discount you received off posted when you signed. The difference, multiplied by your balance and the years remaining, is the IRD. Signed at 5.00% when posted was 6.50% (a 1.50-point discount), with three years left and posted for a 3-year term now at 4.00%? The comparison rate is 4.00% − 1.50% = 2.50%, the differential is 2.50 points, and on a $400,000 balance the IRD is $30,000 — six times the three months' interest of $5,000. Enter a discount of 0 and the same facts give a $12,000 IRD: the discount you were so pleased to negotiate is exactly what inflates the penalty.
Two honesty notes. First, methods genuinely vary: the posted-rate method above is the major banks' standard, but some lenders compare contract rates to contract rates (a much smaller differential), some pro-rate differently, and prepayment privileges reduce the chargeable balance first. Second, the penalty is calculated on the balance after your annual prepayment privilege is applied — if you have not used this year's 15–20% lump-sum allowance, exercising it before breaking can cut the penalty proportionally. This calculator gives you the major-bank figure so a refinance quote can be judged against a realistic worst case; your lender's payout statement is the only binding number.
How to use it
- Enter your current balance, contract rate and the months left in the term — all on your latest mortgage statement.
- For a fixed rate, find your lender's current posted rate for the term closest to your remaining time (posted rates are published on lender websites; they are much higher than the discounted rates advertised).
- Enter the discount you received at signing if you know it: original posted rate minus your contract rate. Leave it at 0 to see the floor version of the IRD; add it to see the major-bank figure.
- Compare the IRD against three months' interest — you pay the greater — then judge any refinance saving against the total, fees included. The table shows how fast the penalty decays if you wait.
The formula
The IRD is meant to compensate the lender for re-lending your money at today's lower rates for the rest of your term — hence balance × rate gap × time. Because the comparison uses posted rates (with your discount stripped back out), the gap is usually far wider than the difference between your contract rate and the discounted rates you see advertised today, which is the single biggest reason real-world penalties exceed borrowers' expectations.
Worked example
A $400,000 balance at 5.00% fixed with 36 months left: three months' interest is $400,000 × 5% × 3/12 = $5,000. If the lender's posted 3-year rate is now 4.00% and you signed with no discount, the IRD is $400,000 × (5.00% − 4.00%) × 3 = $12,000 — you pay $12,000, plus say $300 of discharge fees: $12,300. If you had signed at a 1.50-point discount off posted, the comparison rate drops to 2.50%, the IRD becomes $30,000, and breaking costs $30,300 — which is why "we got a great discount" and "the penalty was enormous" so often describe the same mortgage.
Sources: Prepayment charge mechanics per the Financial Consumer Agency of Canada’s published guidance and the major lenders’ disclosed posted-rate IRD methods; the exact method is lender-specific, as the page explains. Last updated: October 2026.
Frequently asked questions
How is a mortgage break penalty calculated in Canada?
For a closed variable-rate mortgage: three months' interest on the balance. For a closed fixed-rate mortgage: the greater of three months' interest or the Interest Rate Differential (IRD) — your balance multiplied by the gap between your contract rate and the lender's current comparison rate, pro-rated over the time left in the term. A discharge/administration fee of roughly $200–$400 is usually added. Open mortgages can be repaid any time without penalty.
Why is my IRD so much bigger than three months' interest?
Because of posted rates. The comparison rate is the lender's posted rate for your remaining term minus the discount you received at signing — posted rates run 1.5–2.5 points above the discounted rates borrowers actually sign at, so the "gap" the IRD prices is much wider than the market move in rates. On a $400,000 balance with three years left, each point of differential is worth $12,000 of penalty.
Can I reduce the penalty before breaking?
Yes — use your prepayment privilege first. Most closed mortgages allow a lump sum of 15–20% of the original balance each calendar year without charge; the penalty is then calculated on the reduced balance. Timing matters too: the IRD shrinks every month as the remaining term shortens (the table on this page shows the decay), and breaking in January after a fresh year's privilege opens can be materially cheaper than breaking in December.
Do all lenders calculate the IRD the same way?
No, and the differences are worth thousands. The major banks use the posted-rate method modelled here. Many monoline and B-lenders use a simpler differential between contract rates, producing far smaller penalties; a few charge a flat 3% of the balance on some products. FCAC maintains a page of each major lender's stated method — check yours before relying on any estimate, including this one, and always confirm with a payout statement.
Is the penalty tax-deductible or negotiable?
For a principal residence, no — it is a personal cost (different rules can apply to rental properties). Negotiable, sometimes: if you are breaking to move to a larger mortgage with the same lender (a blend-and-increase, or porting to a new home), lenders frequently waive or reduce the penalty because they keep the business. Breaking to leave entirely gives you the least leverage — which is when shopping the new mortgage hard matters most.
What formula does this canada mortgage penalty calculator (ird) calculator use?
Three months' interest = balance × contract rate × 3/12. IRD = balance × max(0, contract rate − (current posted rate for the closest term − your signing discount)) × months remaining ÷ 12. Fixed-rate penalty = max(the two) + discharge/admin fees. The IRD is meant to compensate the lender for re-lending your money at today's lower rates for the rest of your term — hence balance × rate gap × time. Because the comparison uses posted rates (with your discount stripped back out), the gap is usually far wider than the difference between your contract rate and the discounted rates you see advertised today, which is the single biggest reason real-world penalties exceed borrowers' expectations. The worked example on this page applies the formula step by step with real numbers, so you can verify the result by hand.