Penalty Calculator
See the cost of breaking a Canadian mortgage early — three months’ interest versus IRD, with both posted-rate and contract-rate methods shown.
Calculate your prepayment charge
Enter the balance still outstanding, your contract rate, and the months left in the term — not the amortization. Every step of the arithmetic is shown, so you can check a lender’s payout statement against it line by line.
The term, not the amortization. A five-year term signed two years ago has 36 months left.
Greater of three months' interest or IRD
If you do not know, run both — the comparison is below.
An estimate against a representative lender, not a quote. Actual IRD varies by lender and by posted versus contract rate. Only the written payout statement from your own lender is contractual.
- Monthly interest at the contract rate$1,853$450,000 x 4.94% / 12
- Three months' interest$5,558$1,852.50 x 3
- Comparison rate for the closest term4.24%Current market rate a new borrower would be quoted
- Rate differential0.70%4.94% - 4.24%
- Remaining term in years3.00 years36 months / 12
- Interest rate differential$9,450$450,000 x 0.70% x 3.00
| Method | Comparison rate | Differential | Charge |
|---|---|---|---|
| Contract-rate method | 4.24% | 0.70% | $9,450 |
| Posted-rate method | 4.24% | 0.70% | $9,450 |
At this discount the two methods agree. Raise the discount off posted and the posted-rate column pulls away.
One representative row, not a named lender. Market rates for the 3-year and 5-year buckets come from the synced rate dataset; the 4-year bucket is interpolated between them, and the 1- and 2-year buckets are held flat at the 3-year rate because the dataset carries no shorter series. Posted rates add the observed benchmark-to-market spread. Your lender’s own table will differ, and so will the discount on your commitment letter.
The two calculations, written out
Three months’ interest is outstanding balance times the contract rate, divided by four. The interest rate differential is the gap between your contract rate and a comparison rate, applied to the balance, times the years left in the term — not the amortization. If the comparison rate is at or above your contract rate the IRD is zero. On a closed fixed mortgage the charge is the greater of those two figures. On a closed variable the IRD never fires. An open mortgage carries no prepayment charge.
| Charge | Formula | Applies to |
|---|---|---|
| Three months’ interest | balance × contract rate ÷ 12 × 3 | Every closed mortgage |
| Interest rate differential | balance × (contract rate − comparison rate) × months ÷ 12 | Closed fixed only |
| Prepayment charge | max(three months’ interest, IRD) | Closed fixed; variable takes the first term only |
Where the comparison rate comes from — the two industry methods
Both methods use the same IRD formula. They differ only in which rate table the lender reads for the term closest to your remaining months. Under the contract-rate method the comparison rate is what a new borrower would be quoted today, the convention associated with monoline and broker-channel lenders. Under the posted-rate method the lender starts from its published posted rate and subtracts the discount you negotiated when you signed — so your original concession becomes an input to a penalty you pay years later.
Write d for the discount you received at origination and s for today’s gap between posted and market on the comparison term. Whenever both differentials are positive, the posted-rate differential exceeds the contract-rate differential by exactly d − s. If either one floors at zero — a contract rate at or below the comparison rate — the identity stops holding and both methods collapse toward the three-month floor. The posted-rate method is therefore the expensive one only when your origination discount was deeper than today’s posted spread. Equal, and the methods agree to the dollar. Shallower, and the posted method is the cheaper of the two. It is a spread, not a surcharge.
Actual IRD varies by lender and by which rate the clause uses — posted versus contract. This page models one representative Canadian lender with posted-versus-discount spreads drawn from the synced rate dataset, not a named institution. Your commitment letter is the source for d; the payout statement is the only contractual number.
Worked example: a fixed mortgage with three years to run
$450,000 outstanding on a five-year fixed at 4.94%, 36 months left. The commitment letter shows a posted rate of 7.04% against that contract rate — a 2.10% discount off posted. The closest comparison term is the 3-year fixed, at 3.94% in the market and 5.89% posted. Every figure in the table is produced by the same engine the calculator uses, pinned to the 2026-08-02 snapshot so the prose cannot drift from the arithmetic.
| Step | Contract-rate method | Posted-rate method |
|---|---|---|
| Comparison rate before adjustment | 3.94% | 5.89% |
| Less the origination discount | — | −2.10% |
| Comparison rate used | 3.94% | 3.79% |
| Rate differential (4.94%− comparison) | 1.00% | 1.15% |
| IRD — $450,000 × differential × 3.00 years | $13,500 | $15,525 |
| Three months’ interest — $450,000 × 4.94%÷ 4 | $5,558 | $5,558 |
| Prepayment charge — the greater of the two | $13,500 | $15,525 |
Same borrower, same day, $2,025 apart — entirely because of which rate table the contract points at. The IRD binds under both methods, clearing the $5,558 three-month floor. The 2.10% discount beats the 1.95% posted spread by 0.15%, and $450,000 × 0.15% × 3.00 years is exactly $2,025.
The same balance, variable or cycle-bottom fixed
Same $450,000 and 36 months on a closed variable at 3.85% is $4,331 — three months of interest, IRD $0. That is $15,525 on the posted-rate fixed version of the same mortgage, a clause difference rather than a rate difference. The mirror image: a 2.19%fixed still sitting below today’s comparison rate, with 24 months left, has a zero differential, a zero IRD, and a three-month floor of $2,464. Cheap mortgages are cheap to break.
What this page is not: a quote for your lender
This calculator models one representative Canadian lender. It cannot model yours: which rate basis the clause compares against, and which term it treats as closest, are contract terms no public dataset captures. Actual IRD varies by lender and by posted versus contract rate. Read the two columns as a range. Near the contract-rate figure means today’s market rate; near or above the posted-rate figure means posted minus your origination discount; somewhere else means the clause does something this model does not.
The only contractual number is the written payout statement. Ask which comparison rate and which term it used, then check the arithmetic here — and if the penalty clears, run it through the refinance break-even math. Ratellow names no lenders; the representative row is built from the same synced dataset the rest of the site runs on.
The comparison rates this calculator uses
Rates as of 2026-09-19, the snapshot the calculator above is running on. The IRD is measured against the term closest to your remaining months, so these are the buckets it matches into. The worked examples stay pinned to the 2026-08-02 snapshot, so their arithmetic cannot drift.
| Term | Market rate | Posted rate | Market rate source |
|---|---|---|---|
| 1-year fixed | 4.24% | 5.89% | Derived from anchors |
| 2-year fixed | 4.24% | 5.89% | Derived from anchors |
| 3-year fixed | 4.24% | 5.89% | Synced dataset |
| 4-year fixed | 4.34% | 5.99% | Derived from anchors |
| 5-year fixed | 4.44% | 6.09% | Synced dataset |
The three- and five-year market rates come straight from the synced dataset. The four-year bucket is interpolated between those two anchors; the one- and two-year buckets are held flat at the three-year rate, because the dataset carries no shorter series to interpolate against. Posted rates add 1.65%, the same-day gap between the Bank of Canada five-year conventional benchmark and the synced five-year market rate, clamped to a 1.50–2.00 percentage-point band. Full compilation method: rate data methodology page.
Mortgage penalty FAQs
Is the penalty three months of interest or the interest rate differential?▾
Why do two lenders quote different penalties on the same mortgage?▾
Does breaking a variable-rate mortgage cost less than breaking a fixed one?▾
Can I reduce the penalty before I break the mortgage?▾
Verified 2026-09-12
How the math works — reading a payout statement, and which borrowers are actually exposed to the posted-rate method.