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What would breaking your mortgage actually cost?
Three months' interest against the interest rate differential, on your own numbers — including the comparison rate your lender uses, which is usually the whole difference.
Your situation
IRD comparison rate
Which method applies is set by your mortgage contract, not by who your lender is — two mortgages at the same bank can differ. Check your commitment letter or renewal agreement under prepayment or early payout, or ask your lender for the formula in writing. The difference between the two methods is often tens of thousands of dollars.
Rate you'd switch to
Discharge and registration fees, legal, an appraisal, a title search. The penalty is the loud number, but these decide a close call — and the renewal comparison has always counted them.
The comparison rate drives the penalty; the switch rate drives the savings. They're often close but need not match.
Over the new term
The comparison above stops at maturity, which charges the whole penalty against the months you have left and counts none of what comes after. This one runs both paths over the full new term — so it has to assume a rate you'd renew at, years from now. Nobody knows that rate, including us. It opens equal to the rate you'd switch to, which asks the cleanest version of the question; move it to see how much the answer depends on it.
Both rate fields start at 3.79% — the average rate chartered banks actually charged on new 5-year-plus fixed lending, uninsured, published by the Bank of Canada for Jun 1, 2026. Not posted rates, and not your lender's. Change either field to your own figures.
An average, not a quote or an offer, and measured on that date rather than today — this series is monthly and lags two to three months. LOONIELODGE does not arrange mortgages.
Source: Bank of Canada. Data adapted by LOONIELODGE. Available free of charge at bankofcanada.ca. The Bank makes no warranty as to the accuracy or completeness of this content.
For the IRD your lender uses their rate for a term closest to the time you have left. The Bank's shortest fixed series is three to under five years, so on a term with only months to run this is an anchor, not a match — ask your lender for the rate they would actually use.
Estimated penalty to break
$4,290.00
3 months' interest applies — greater than the IRD.
- 3 months' interest ✓
- $4,290.00
- Interest rate differential (IRD)
- $4,000.00
- Effective comparison rate
- 3.79%
- Rate differential
- 0.50%
Break vs. stay
Staying is cheaper by $396.27 — the penalty outweighs the savings.
Interest if you stay
$33,264.27
Interest if you switch
$29,370.54
Interest saved
$3,893.73
Penalty
− $4,290.00
Net savings
-$396.27
Break-even
Not within term
Compares interest over the 24 months left in your term at each rate on the same balance, then subtracts the penalty and any switch costs you entered as up-front cash. Break-even is when the interest saved has covered both. The window covers 24 whole scheduled payments — 24 months — since a payment cannot be made in part. The penalty above is measured over exact months, so the two can differ slightly on a short window.
Over a 5-year term
Staying means your current rate until maturity, then renewing. Breaking means the new rate from today. Same window, same balance, same amortization.
Staying is cheaper by $257.16 over 60 months, after the penalty and costs.
Interest if you stay
$74,491.24
Interest if you switch
$70,458.40
Interest saved
$4,032.84
Cost to leave
− $4,290.00
Net savings
-$257.16
Left owing at the end — stay · switch
$348,105.56 · $346,931.00
Assumes you renew $381,245.95 at 3.79% in 24 months, over the 276 months of amortization you'd have left. That rate is an assumption, not a forecast — it is the figure this whole comparison turns on.
Both paths start from the same balance, run the same number of payments and end on the same amortization — but each pays its own contractual amount, and a lower rate carries a smaller payment. So the cheaper path puts less toward principal and leaves more owing at the end. That is why the two balances differ by more than the interest does, and why the verdict above weighs the interest saved against the cost to leave rather than reading either balance on its own.
The number that decides it is the comparison rate
On a closed fixed mortgage the penalty is the greater of three months' interest and the interest rate differential (IRD). Three months' interest is arithmetic nobody disputes. The IRD depends on which rate your lender compares your contract against, and lenders do not agree on that — which is why two borrowers with identical balances, rates and terms can be quoted penalties several times apart.
- The posted-rate method
- Used by the big banks. They take the discount you originally received — their posted rate at the time, minus the rate you actually signed — and subtract it from their current posted rate for the remaining term. The comparison rate comes out lower, the differential comes out wider, and the penalty comes out larger. This is the method that produces the five-figure numbers people are shocked by.
- The offered-rate method
- Used by many monolines and credit unions. They compare your contract rate against the rate they are offering today for the remaining term, with no discount subtracted. On the same mortgage this is routinely a fraction of the posted-rate figure.
- The statutory ceiling most calculators ignore
- Section 10 of the federal Interest Act caps the charge at three months' interest on a mortgage whose term is longer than five years, once more than five years have run — for an individual borrower, not a corporation. Where it bites, this calculator shows both the capped figure and what would have been charged without it, because your lender may well quote the larger one.
The same mortgage, both methods
A $400,000.00 balance at 5.29%, 36 months left on a five-year fixed, where the lender is offering 4.50% today for the remaining term and their posted rate when you signed was 6.99%.
| Three months' interest — the floor under both methods | $5,290.00 |
|---|---|
| IRD, offered-rate method — compared against 4.50% | $9,480.00 |
| IRD, posted-rate method — compared against 2.80%, being 4.50% less your original 1.70 discount | $29,880.00 |
| Penalty at a lender using the offered-rate method | $9,480.00 |
| Penalty at a lender using the posted-rate method | $29,880.00 |
Same mortgage, same day, same amount owing. The only thing that changed is which rate the contract lets the lender compare against — which is why it is worth asking before you sign, not after you want out.
Where these rules come from
- Interest Act, R.S.C. 1985, c. I-15, s. 10 — the three-month ceiling and the exclusion of corporate borrowers.
- Your mortgage contract's prepayment clause, which names the comparison rate your lender is entitled to use. It governs, and it is the document to read.
- Financial Consumer Agency of Canada guidance on prepayment penalties.
Method last reviewed 24 August 2026.
Written by Hermann Gael Nang-SongFounder of LoonieLodge Inc., and author of the Canadian mortgage engine this site runs on.
Educational and informational only — not licensed mortgage, financial, legal or tax advice. Every lender's contract governs its own mortgage, and the figures here are estimates from stated assumptions rather than quotes. Confirm anything you intend to act on with your lender and a licensed professional.
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