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What's my mortgage penalty?

Thinking of breaking your mortgage early? Estimate your prepayment penalty the way your lender actually calculates it. Choose your lender below, each one does it differently, and the big banks' posted-rate method is usually the most expensive.

How mortgage penalties work in Canada

If you break your mortgage before the end of your term, your lender charges a prepayment penalty. In Canada it's calculated one of two ways. On a variable-rate mortgage the penalty is almost always three months' interestyour balance multiplied by your rate, divided by four. On a fixed-rate mortgage you pay the greater of three months' interest or the interest rate differential (IRD), and the IRD is usually the bigger number.

What the IRD is, and why the big banks charge more

The interest rate differential is the gap between your current rate and the rate the lender can charge now for the time left in your term, multiplied by your balance and the months remaining. The catch is which rate the lender compares against. The big banks, RBC, TD, Scotiabank, BMO, CIBC and National Bank, use their posted rates (and the discount you originally received), not your actual contract rate. Posted rates run well above market, so the calculated penalty is inflated, sometimes into the tens of thousands. Monoline lenders such as First National, MCAP and CMLS, and many credit unions, use the contract-rate method, which is typically far cheaper. Pick your lender in the calculator above and it applies that lender's actual method.

Two ways to shrink the penalty

  • Use your prepayment privilege first. Most mortgages let you pay 10 to 20% of the balance penalty-free each year. Applying it before you break lowers the balance the penalty is charged on.
  • Time it late in your term. Fewer months remaining means a smaller IRD.

Once you know your penalty, find out whether breaking early actually pays off with our early renewal savings calculator, or see how a refinance could also clear high-interest debt with the refinance & debt consolidation calculator.

This tool gives a close estimate, not your lender's official quote, exact posted rates, rounding and contract terms vary, and discharge or legal fees may apply. Mortgage Momentum confirms your real penalty with your lender and shops 50+ lenders to make sure the move works in your favour.

Good to know

Mortgage penalty FAQs

How is a mortgage prepayment penalty calculated in Canada?
On a variable-rate mortgage the penalty is almost always three months' interest. On a fixed-rate mortgage you pay the greater of three months' interest or the interest rate differential (IRD). The big banks calculate the IRD from their posted rates, which usually makes their penalties far larger than a monoline lender or credit union that uses your actual contract rate.
What is the interest rate differential (IRD)?
The IRD is the gap between your current interest rate and the rate the lender can now charge for the time left in your term, multiplied by your balance and the months remaining. A bigger gap between the two rates and more time left in your term both make the penalty larger.
Why are big-bank mortgage penalties so much higher?
RBC, TD, Scotiabank, BMO, CIBC and National Bank base the IRD on their posted rates and the discount you originally received, not your actual rate. Posted rates sit well above market, so the calculated penalty is inflated. Monoline lenders such as First National and MCAP, and many credit unions, use the contract-rate method, which is typically far cheaper.
What is the penalty on a variable-rate mortgage?
Almost always three months' interest, your balance multiplied by your rate, divided by four, regardless of lender. There is no IRD on a standard variable-rate mortgage.
Can I reduce or avoid the penalty?
Sometimes. You can apply your annual prepayment privilege first to shrink the penalised balance, time the break for late in your term, port your mortgage to a new property, or have a new lender cover part of the penalty. Mortgage Momentum shops 50+ lenders to structure the move so breaking early actually pays off.
Is this calculator's number my exact penalty?
No, it's a close estimate. Your lender applies its own posted rates, term rounding and contract terms, and discharge, appraisal or legal fees may also apply. We confirm your exact payout with your lender before you commit.

Not sure breaking early pays off?

We'll confirm your exact penalty with your lender, shop 50+ lenders, and tell you whether refinancing now actually saves you money, at no cost.

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