Mortgage Penalty Calculator — How Much to Break Your Mortgage?
Calculate the penalty for breaking your Canadian mortgage early. Compare Interest Rate Differential and 3 months interest penalty methods.
Breaking a Canadian mortgage before the term ends triggers a penalty calculated as the greater of 3 months interest or the Interest Rate Differential (IRD). Fixed-rate mortgages typically face the larger IRD penalty while variable-rate mortgages usually pay only 3 months interest. Penalties can range from $3000 to $30000+ depending on your rate the current rate your remaining balance and time left on the term.
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Key Information
| Parameter | Details |
|---|---|
| Variable Rate Penalty | 3 months interest (typically) |
| Fixed Rate Penalty | Greater of 3 months interest or IRD |
| IRD Formula | (Your rate - Current rate) x Balance x Remaining term |
| Average Penalty Range | $3000 - $30000 |
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Use Calculator NowFrequently Asked Questions
How much is the penalty to break my mortgage?
For a $400000 balance at 5.5% fixed with 3 years remaining and current rates at 4.5%: 3 months interest = $400000 x 5.5% / 4 = $5500. IRD = (5.5% - 4.5%) x $400000 x 3 years = $12000. Penalty = greater of $5500 or $12000 = $12000. For variable rate mortgages the penalty would be only $5500 (3 months interest) making variable much cheaper to break.
When is it worth paying the penalty to break?
Breaking your mortgage makes sense when the interest savings from a lower rate exceed the penalty over your remaining term. If the penalty is $12000 and refinancing at 1% lower saves $4000/year you break even in 3 years. If you plan to stay 5+ years you save $8000 net. Also consider: are you selling the home (port your mortgage instead) or can you blend-and-extend with your current lender?
How to avoid or reduce mortgage penalties?
Choose variable rate mortgages (3 months interest penalty vs large IRD). Look for fair penalty lenders who calculate IRD using posted rates vs discounted rates. Consider portable mortgages that transfer to a new property. Some lenders allow 15-20% annual prepayment without penalty. Ask about blend-and-extend options which avoid penalties entirely by extending your term at a blended rate.
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Last updated: March 2026