See what breaking your mortgage really costs. The big banks and monoline lenders calculate the IRD differently — this calculator shows both, using the formulas from the lenders' own calculators.
Two Penalty Types
IRD vs 3-month interest
Bank vs Monoline
Posted-rate vs actual-rate IRD
Estimate Only
Contact lender for exact amount
RBC, TD, Scotiabank, BMO: today's posted rate minus the discount you got.
The posted rate for the term closest to your months left. Published on your bank's rate page.
Posted rate when you signed minus your contract rate. It's in your mortgage agreement.
What a monoline lender would charge today for that term. See today's rates.
3 months' interest
Balance × your rate × 3/12
$0
Interest rate differential (IRD)
Balance × rate gap × months/12
Comparison rate 0% · rate gap 0% · 36 months
Your estimated penalty
Same mortgage, two lender methods
Estimate only. Your lender's payout statement is the final number.
Quick answer: Every lender charges the greater of 3 months' interest or the IRD on a closed fixed mortgage. The difference is the comparison rate. The big banks take today's posted rate and subtract the discount you got when you signed. Monoline lenders like First National compare your rate to the rate they actually offer today. Because posted rates sit well above real rates, the bank method creates a bigger rate gap and a bigger penalty.
Comparison rate = posted rate today − your original discountIRD = balance × (your rate − comparison rate) × days left ÷ 365
Example: $500,000, 4.50% rate, 36 months left. Posted 3-year today 5.10%, original discount 1.50% → comparison 3.60%. Gap 0.90% × 3 years ≈ $13,500.
Comparison rate = lender's current rate for a similar mortgageIRD = balance × (your rate − comparison rate) × months left ÷ 12
Same mortgage, lender offers 4.10% for 3 years today. Gap 0.40% × 3 years ≈ $6,000.
These are taken from each lender's published prepayment pages and calculators (checked October 2026). Your mortgage agreement is what actually applies.
Posted rates are list prices almost nobody pays. When you signed, the bank gave you a big discount off its posted rate. At payout, it subtracts that same discount from today's posted rate. If posted rates for shorter terms are low relative to real rates, the comparison rate drops far below what the bank would lend at today. That widens the gap and the penalty grows. RBC and BMO also use present value and the declining balance, which trims the result slightly, so their real figure can be a little lower than the simple formula.
CIBC's own example: Maria has a 6.50% rate with a 0.50% discount. CIBC calculates 3 months' interest at 7.00%, not 6.50%, and compares interest at 7.00% to its 5.00% posted 2-year rate. Her estimated IRD was $4,036.33.
Choosing your next lender: The penalty method is set the day you sign. If there's any chance you'll sell, refinance or switch before maturity, a lender that uses its actual rates can save thousands. Best Rates compares penalty clauses along with the rate.
Most closed mortgages let you pay 10–20% of the original amount each year penalty-free. Pay that first and the penalty is charged on a smaller balance.
At maturity there's no penalty. Close to the end, the IRD often falls to 3 months' interest or less.
Moving? Taking your mortgage to the new home can avoid the penalty.
Your lender blends your rate with today's rate instead of charging the penalty. Try the blend calculator.
Let us help you run the numbers and find out if refinancing saves you money.
Free tools our clients use most often alongside this one.
Lender IRD formulas vary — the calculator estimates, but the exact penalty comes from your lender. We'll pull it for you and show whether refinancing still saves you money. Free, no credit check.
For fixed-rate mortgages, the penalty is the greater of: (1) 3 months' interest on your current balance, or (2) the Interest Rate Differential (IRD) — the difference between your contract rate and the lender's current rate for your remaining term, applied to your balance. Variable-rate penalties are always 3 months' interest.
IRD measures the difference between your mortgage rate and the lender's current posted or comparison rate for a term matching your remaining term. For example, if you have 3 years left at 5.5% and the lender's current 3-year rate is 4.5%, the IRD is 1.0%. Some lenders use posted rates (higher penalty) while others use discounted rates.
Fixed-rate mortgages use the IRD calculation, which can result in penalties of $10,000-$30,000+ when rates have dropped significantly since you locked in. Variable-rate mortgages always use the simpler 3-months' interest calculation, making penalties much more predictable and usually $3,000-$5,000.
Most mortgages allow 15-20% annual lump-sum prepayments without penalty. By making your maximum prepayment before breaking the mortgage, you reduce the balance the penalty is calculated on. Also, waiting until closer to renewal reduces the remaining term, lowering the IRD.
Compare the penalty cost against the interest savings for your remaining term. If the savings exceed the penalty, it's worth breaking. Generally, if you can save 0.50%+ on rate with more than 2 years remaining, it's worth calculating. Our Refinance Calculator can help with this analysis.
Breaking your mortgage may make sense if the interest savings from a lower rate exceed the penalty cost, if you need to access equity for debt consolidation, or if you're selling your home and can't port the mortgage.
High penalties typically occur when you have a fixed-rate mortgage and rates have dropped since you signed. The IRD calculation compensates the lender for the interest they'll lose by lending the money at today's lower rates.
No, and this is a major issue. Some lenders use posted rates (higher = bigger penalty), while others use discounted rates (lower = smaller penalty). Big banks often use posted rates, resulting in much higher penalties than monoline lenders.
Yes, in most cases you can add the penalty to your new mortgage if you have enough equity. However, this means you'll pay interest on the penalty amount over the life of your new mortgage.
Variable-rate mortgages typically only have a 3-month interest penalty, regardless of when you break. This makes them much more flexible and cheaper to exit than fixed-rate mortgages with IRD penalties.
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