Mortgage Penalty Calculator
Estimate the cost of breaking your mortgage early. Compare 3-month interest penalty vs Interest Rate Differential (IRD) to see what you'll pay.
Two Penalty Types
IRD vs 3-month interest
Greater of Both
Lenders charge higher amount
Estimate Only
Contact lender for exact amount
Your Mortgage Details
The lender's current posted rate for a term matching your remaining months
Fixed rate mortgages use the greater of IRD or 3-month interest
Estimated Penalty
3-Month Interest Penalty
Balance × Rate × 3/12
$5,500
Interest Rate Differential (IRD)
Balance × Rate Diff × Months/12
$10,000
Rate difference: 1.00% | Applied over 36 months
Your Estimated Penalty
$10,000
Based on IRD (the greater of the two)
*This is an estimate. Contact your lender for exact penalty amount.
How Mortgage Penalties Are Calculated
3-Month Interest Penalty
The simpler calculation. You pay three months of interest on your remaining balance.
Formula:
Balance × Interest Rate × (3 ÷ 12)
Example: $400,000 × 5.5% × 0.25 = $5,500
Interest Rate Differential (IRD)
The more complex calculation. Based on the difference between your rate and current rates.
Formula:
Balance × (Your Rate - Current Rate) × (Months ÷ 12)
Example: $400,000 × 1% × 3 = $12,000
Which Penalty Applies to You?
- Fixed-rate mortgages: Lenders charge the GREATER of 3-month interest or IRD. When rates have dropped significantly since you got your mortgage, the IRD can be much higher.
- Variable-rate mortgages: Typically only the 3-month interest penalty applies, making them much cheaper to break.
- Open mortgages: Can be paid off anytime without penalty (but usually have higher rates).
Why IRD Can Be So High
The IRD penalty can be substantial when interest rates have dropped since you took out your mortgage. Banks use different methods to calculate IRD, and some use "posted rates" while others use "discounted rates" – leading to vastly different penalties.
For example, if you have a 5.5% mortgage and current rates for your remaining term are 4.5%, the 1% difference applied over 3 years can result in a penalty of $12,000 or more on a $400,000 balance.
Important: Each lender calculates IRD differently. Some use posted rates, others use discounted rates. Always contact your lender for an official payout statement before making decisions.
Tips to Minimize Mortgage Penalties
Wait Until Renewal
If you're close to renewal, waiting a few months can save thousands in penalties.
Use Prepayment Privileges
Make your 15-20% annual prepayment before breaking to reduce the balance penalties are calculated on.
Port Your Mortgage
If moving, porting your mortgage to the new property can avoid penalties entirely.
Blend & Extend
Some lenders offer to blend your current rate with new rates and extend your term without penalties.
Frequently Asked Questions
Is Breaking Your Mortgage Worth It?
Let us help you run the numbers and find out if refinancing saves you money.