Interest Rate Differential (IRD) Penalty
The larger of two penalty calculations applied when breaking a fixed-rate mortgage early at the Big 5 banks — often the difference between your posted rate and the lender's current posted rate.
The Interest Rate Differential (IRD) penalty is the cost of breaking a fixed-rate mortgage before your term ends. You pay the greater of three months of interest or the IRD. At the Big 5 banks, IRD is calculated using the posted rate you received a discount from — not your actual rate — which produces meaningfully larger penalties. On a $600,000 mortgage broken in year 2 or 3 of a 5-year fixed, Big 5 IRD can reach $15,000–$30,000. Monoline lenders typically calculate IRD against your actual contract rate, producing penalties 40–70% lower. Variable-rate mortgages never trigger IRD — they use the simpler three-months-interest penalty.
Related Terms
A mortgage where the interest rate is locked for the full term, keeping your monthly payment constant regardless of Bank of Canada decisions.
The artificially high rate lenders publicly advertise — rarely paid by actual borrowers, but used for IRD penalty calculations at Big 5 banks.
The fee charged when you pay off or break a mortgage early — the greater of three months' interest or the IRD calculation for fixed-rate mortgages.