What this calculator answers
When you pay off a closed mortgage before its maturity date, by selling, refinancing or switching lenders, the lender charges a prepayment penalty. For most variable-rate mortgages that is three months of interest. For most fixed-rate mortgages it is the higher of three months of interest or the interest rate differential (IRD), which tries to cover the interest the lender loses because rates have dropped since you signed.
The IRD is where penalties get large, and where lenders differ most. This calculator shows both common IRD methods side by side, so you can see how much the method in your contract matters before you call your lender.
How the calculation works
- Three months' interest = balance x annual rate x 3/12, using your rate unless you enter a different one under More options.
- Posted-rate IRD: the comparison rate is the lender's posted rate today for a term close to your time left, minus the discount you got off the posted rate when you signed.
- Current-rate IRD: the comparison rate is the lender's current rate for a term close to your time left.
- Simple IRD = balance x (your rate minus the comparison rate) x months left / 12. The present-value option discounts each month's difference at the comparison rate, which gives a slightly smaller number.
- For fixed rates the estimate is the higher of the two calculations. If the comparison rate is higher than your rate, the IRD is zero and three months' interest applies.
Assumptions and limits
- The rule of thumb (three months' interest for variable, the higher of three months or IRD for fixed) is common practice reported by the Financial Consumer Agency of Canada, but the exact method is set by your lender's contract, not by a regulation.
- The rates you enter are used as given. This tool does not know any lender’s posted or current rates.
- Cashback clawbacks, discharge fees, admin fees and reinvestment fees are not included. Ask your lender about each.
- Open mortgages and mortgages at maturity usually have no penalty. Some lenders waive or reduce the penalty if you port the mortgage or take a new mortgage with them.
Common questions
Why is my bank’s penalty so much higher than this?
Big banks often use the posted-rate method. Because your discount is subtracted from a posted rate, the comparison rate can be well below your own rate, and the IRD grows. Check the comparison table above: the gap between methods can be thousands of dollars on the same mortgage.
Can I lower my penalty?
Sometimes. Using your annual prepayment privilege before you pay out can shrink the balance the penalty is based on, if your contract allows it. Porting the mortgage to a new home, blending with your lender, or waiting until closer to maturity can also help. Ask your lender which options apply.
Does a variable-rate mortgage ever charge an IRD?
Rarely. Most variable-rate contracts charge three months' interest. A few lenders calculate those three months at prime or another rate instead of your own, which is why you can override the rate under More options.
Is my penalty the same next month?
No. The balance, the months left and the lender’s rates all change, so the penalty changes too. Ask for a quote for the date you actually plan to pay out.
Is breaking worth it once I know the penalty?
It depends on what you save after the penalty and fees. Use the break-even calculator with your penalty to compare keeping your mortgage with breaking it.
Sources
- FCAC: prepayment penalties (rules checked 2026-10-31)
- Interest Act, section 6 (rules checked 2026-10-31)