Prepayment Penalty Calculator Canada 2026
Estimate your mortgage break penalty using the Interest Rate Differential (IRD) method. Calculate the cost of breaking your Canadian mortgage early.
FAQ
How is the Interest Rate Differential (IRD) calculated?
The IRD measures the difference between your contract rate and the lender's current rate for a term closest to your remaining term, applied to your outstanding balance over the remaining months. For example, if you have 3 years left on a 5-year fixed at 5% and the lender's current 3-year rate is 3.5%, the differential is 1.5%. This difference is applied to your balance for the remaining 36 months. However, lenders vary in how they define the "comparison rate" — some use posted rates, others use discounted rates — so the same situation can produce very different penalties at different lenders.
When does it make sense to pay the penalty and refinance?
It may make sense if the interest savings from a lower rate over your new term exceed the penalty cost. Calculate your total interest cost under the current mortgage for the remaining term, compare it to the total interest at the new rate plus the penalty, and see if you come out ahead. Also consider non-financial reasons like consolidating debt, accessing equity, or switching from variable to fixed (or vice versa). Use this calculator to estimate the penalty and compare scenarios.
Can I avoid the prepayment penalty when selling my home?
Some mortgages are "portable," meaning you can transfer the mortgage to a new property without penalty. You'll still need to qualify under the current lending rules, but if you're buying a new home simultaneously, porting can save you the penalty. Another option is to have the buyer assume your mortgage (with lender approval), though this is uncommon. If neither is possible, the penalty is deducted from your sale proceeds at closing.
What are prepayment privileges and how can I use them?
Most closed mortgages in Canada allow you to prepay a certain percentage of the original mortgage amount each year (commonly 10-20%) without penalty, typically as a lump sum on any payment date. Many also allow you to increase your regular payment by 10-25% per year. These privileges reset annually and do not carry forward if unused. Maximizing your prepayment privileges over time can dramatically reduce your total interest and amortization period.
Do monoline lenders have lower penalties than big banks?
Often, yes — many monoline lenders (lenders that only offer mortgages) calculate their IRD using the discounted rate rather than the posted rate, which typically results in a lower penalty. The big banks often use their higher posted rates as the basis for IRD calculations, inflating the penalty. This is one reason mortgage brokers frequently recommend monoline lenders. Always ask how the IRD is calculated before signing your mortgage contract.
How does this calculator work?
Enter your current mortgage balance, your contract interest rate, your remaining term, and whether your mortgage is fixed or variable rate. For fixed-rate mortgages, the calculator computes both the three months' interest penalty and the IRD penalty, then applies the greater of the two — as required by most Canadian mortgage contracts. For variable-rate mortgages, it applies the standard three months' interest penalty. Note that actual penalties vary by lender — always confirm with your lender before making decisions.