Breaking your mortgage early is one of the most expensive mistakes Canadians make—often costing $10,000 to $30,000 or more. Understanding how penalties work before you sign could save you a small fortune.
How Mortgage Penalties Work
When you break a fixed-rate mortgage before its term ends, you pay a penalty to compensate the lender for lost interest income.
The Two Penalty Calculations
Lenders use the higher of:
- Three months' interest - Simple calculation based on your current rate
- Interest Rate Differential (IRD) - Complex calculation that's often much higher
What to Ask Before Signing
- How is the IRD calculated?
- What rates are used (posted vs. contract)?
- Can I port to a new property?
- Is blend-and-extend available?
- What are the maximum prepayment privileges?
FAQ
Q: Can I negotiate my penalty?
A: Sometimes. If refinancing with the same lender or in financial hardship, some lenders will reduce or waive penalties.
Understand Your Penalty Before Signing
Get pre-approved and learn about each lender's penalty policies.
Get StartedQ: Is the penalty tax-deductible?
A: Not for your primary residence. For rental properties, penalties may be deductible as a financing cost.
Q: What if I sell my home and buy another?
A: You may be able to port your mortgage to avoid the penalty. Timing and qualification rules apply.
Q: How do I find out my exact penalty?
A: Contact your lender directly for a penalty quote. They're required to provide this information.
Q: Are there mortgages with no penalties?
A: Open mortgages have no penalties but charge higher rates. Some lenders offer "no-frills" products with reduced penalties.
What's Next
Don't sign a mortgage without understanding the penalty implications. Contact our team and we'll help you choose a lender whose penalty policies match your life situation.
Avoid Costly Penalty Surprises
Our team will help you understand penalty implications before you sign.
