What this calculator answers
Breaking a mortgage early makes sense only when the interest you save is larger than everything it costs to get out: the prepayment penalty, legal and discharge fees, and the interest on any costs you roll into the new loan. This calculator lays both paths side by side over the same number of months and counts the balance you still owe at the end, so a smaller payment that comes from a longer amortization does not look like a saving.
It also shows a third path many people miss: break, but keep making your current payment. The lower rate then pays your mortgage down faster instead of lowering the payment.
How the calculation works
- Fixed-rate interest is compounded semi-annually, as Canadian fixed mortgages are. Payments are monthly for the comparison.
- For each option: total cost = upfront cash + every payment over the period + the balance still owed at the end. The difference between the totals is the net benefit.
- Break-even is the first month where the payments you have saved, plus the difference in balances, cover the costs.
- The penalty estimate uses the greater of three months' interest or the interest rate differential (IRD) for fixed rates, and three months' interest for variable. You pick the IRD method your lender uses, or enter the lender's quote.
- The present-value line discounts future payments at the new rate, a stricter test that accounts for paying the penalty now.
Assumptions and limits
- Rates you enter are used as given; this tool does not know current lender rates.
- IRD methods vary by lender. Big banks often compare against posted rates minus your original discount, which produces a larger penalty. Your contract decides.
- If you compare over the full new term, the rate you expect at your current maturity is an assumption. Try a few.
- Prepayment privileges, cashback clawbacks, and rate-hold or switch incentives are not included unless you enter them as costs.
- Income tax is ignored. For a principal residence, penalties are generally not deductible.
Common questions
How do I find out my real penalty?
Call your lender or use their online prepayment calculator and ask for the penalty and the method used (three months' interest or IRD, and which comparison rate). You need your balance, rate, maturity date and the date you plan to pay out. A payout statement shows the official amount.
Is a lower monthly payment a saving?
Not by itself. A payment can drop because the rate is lower, or because the loan is stretched over more years. Only the total paid plus what you still owe tells you whether you are ahead.
Should I add the penalty to my new mortgage?
It keeps cash in your pocket, but you pay interest on it. The calculator includes that interest. If you have the cash and no higher-interest debt, paying it upfront usually costs less.
What is a blend-and-extend?
Your lender blends your current rate with today’s rate and extends your term, usually with no penalty. Enter their blended rate under More options to compare it with breaking. The blend-and-extend calculator goes deeper.
Do I have to pass the stress test to switch lenders?
For an uninsured straight switch at renewal (same amount, same amortization) to a federally regulated lender, OSFI removed the stress test requirement in November 2024. Breaking mid-term to borrow more is a refinance and is qualified normally.
Sources
- FCAC: prepayment penalties (rules checked 2026-10-31)
- Interest Act, section 6 (rules checked 2026-10-31)
- OSFI: minimum qualifying rate (rules checked 2026-10-31)