Mortgage Penalty Calculator

A prepayment penalty (also called a break fee) is what your lender charges when you pay off or break your mortgage before the term ends — for example by selling, refinancing, or switching lenders. It compensates the lender for interest income they expected to earn. In Canada it is usually the greater of an interest rate differential (IRD) amount or three months’ interest on a closed fixed-rate mortgage, and three months’ interest on a variable-rate mortgage. This calculator gives an estimate only, not professional financial advice — always confirm the exact figure with your lender.

Multiply your outstanding balance by your annual rate, divide by 12, then multiply by 3. For example, a $400,000 balance at 3.50% gives $400,000 × 3.50% ÷ 12 × 3 = $3,500.00 in three months’ interest. Variable-rate mortgages in Canada almost always use exactly this amount, and it is also the floor for fixed-rate penalties.

IRD = outstanding balance × (your contract rate − the lender’s current rate for your remaining term) × months remaining ÷ 12. For example, a $300,000 balance at 4.79%% with 24 months left, when the lender’s current 2-year rate is 3.79%%, gives a rate gap of 1.00%: $300,000 × 1.00% × 24 ÷ 12 = $6,000.00. Three months’ interest on the same mortgage would be $3,592.50, so you would pay the higher IRD amount of $6,000.00.

Big banks typically compute the IRD comparison rate as today’s posted rate minus your original discount, while monoline lenders usually compare against today’s actual contract rate. Because your original discount is locked in at signing, the bank method can inflate the gap. Example on a $300,000 mortgage with 36 months left: signed at 2.89%% (posted 4.89%%, discount 2.00%%). Today the posted 3-year rate is 3.44%% and the contract rate is 2.60%%. Bank-style: comparison = 3.44%% − 2.00%% = 1.44%%, gap 1.45%, IRD = $13,050.00. Fair method: gap 0.30%, IRD = $2,700.00. Same mortgage, $10,350.00 apart — which is why this tool shows both methods side by side.

The IRD can’t go below zero — lenders charge the greater of the IRD or three months’ interest. If your contract rate is 4.5%% but the lender’s current rate is 5.5%%, the rate gap is negative, so the IRD is $0.00. You would simply pay three months’ interest: $3,375.00 on a $300,000 balance.

No. Variable-rate mortgages in Canada are almost always broken with just three months’ interest — no IRD applies. On a $400,000 balance at 3.50%%, that is $3,500.00. Note some lenders (e.g. certain adjustable-rate products) use 4–5 months’ interest in the first year or two, so check your mortgage contract.

No. Open mortgages can be paid off in full at any time without a prepayment penalty — the estimated penalty is $0.00. You pay only the outstanding balance plus interest accrued to the payout date.

Under section 10 of the federal Interest Act, if your mortgage term is 5 years or longer and at least 5 years have passed, the most your lender can charge is three months’ interest — even if the IRD formula gives a bigger number. Example: a $300,000 mortgage at 5.49%% with 36 months left has an IRD of $14,400.00, but the 5-year cap limits the penalty to $4,117.50.

Yes. Most closed mortgages let you prepay 15–20% of the original balance per year penalty-free. Paying that down first shrinks the balance the penalty is based on. Example: on a $300,000 mortgage at 4.79%% with 24 months left (current 2-year rate 3.79%%), the IRD is $6,000.00. After using a $50,000.00 prepayment privilege, the effective balance drops and the IRD falls to $5,000.00.

US lenders use several structures: a percentage of the outstanding balance (e.g. 2%), a declining or step-down schedule (e.g. 5-4-3-2-1% by year), a set number of months of interest (e.g. 6 months), a flat fee, or — on commercial loans — yield maintenance or defeasance. Examples on a $280,000 balance: year 2 of a 5-4-3-2-1 schedule = $11,200.00; 6 months’ interest at 6.5%% = $9,100.00. Some loans have no penalty at all (soft or no-prepay-penalty loans).

Break even when your total interest savings exceed the penalty. Example: $300,000 balance, refinancing from 5.49%% to 4.00%% with 36 months left in the term. Monthly payment drops from $1,829.43 to $1,578.06, saving $251.37/month — $9,049.24 over 36 months. After a $6,000.00 penalty, you are ahead by $3,049.24, and the penalty pays for itself in 23.9 months. If you have fewer months left than the break-even point, it is usually better to wait for renewal.

No. This is an educational estimate based on the standard published formulas (IRD, three months’ interest, common US penalty structures). Real lender calculations use your exact contract terms, posted-rate tables, and compounding rules, and can differ by 5–15% or more. Always get your penalty quote in writing from your lender before making a decision, and consider speaking with a licensed mortgage professional.