How Much Does It Cost to Break a Mortgage in Canada? Try Our New Penalty Calculator

Rates have come down a long way from their 2023 peak, and a lot of Canadians locked into a fixed rate around then are now asking the same question: should I break my mortgage and get a lower rate? The answer depends on one number most people don’t know until they call their lender, which is the prepayment penalty.

To make that number easier to find, we built a free mortgage penalty calculator. It estimates your penalty the way Canadian lenders actually work it out, and it tells you whether a lower rate would save enough to cover it.

Try the mortgage penalty calculator

What makes this calculator different

Most penalty calculators online ask you to type in your lender’s “posted rate” from the day you signed. Almost nobody knows that number, so people guess, and the result is off by thousands.

Ours fills it in for you. The Bank of Canada publishes the typical posted mortgage rates offered by Canada’s big banks every week, going back decades. When you enter the month your term started, the calculator looks up the posted rate from that month, works out the discount you were most likely given, and uses today’s posted rates to estimate your interest rate differential (IRD). The rates update automatically, so the estimate reflects this week’s market instead of a number someone typed into a spreadsheet last year.

It also does the second half of the math. Enter a rate you could get today and it compares the interest you’d save over the rest of your term with the penalty you’d pay to leave.

The two ways lenders calculate a penalty

Every Canadian mortgage penalty comes down to one of two formulas:

• Three months’ interest. Your balance times your rate, divided by four. This is what almost every variable-rate mortgage charges.
• Interest rate differential (IRD). The difference between your rate and a comparison rate, charged on your balance for the time left in your term. Fixed-rate mortgages pay whichever is higher, the IRD or three months’ interest.

The comparison rate is where lenders differ. Big banks start from their posted rate for the time you have left and subtract the discount you got when you signed. Most monoline lenders and credit unions use the rate they are actually offering today. For a deeper walk through both methods, see our guide to breaking a mortgage in Canada.

Same mortgage, very different penalties

Here is a real example using this week’s Bank of Canada rates. A homeowner signed a 5-year fixed at 4.99% in March 2024 and owes $450,000. They have 29 months left.

• Three months’ interest: about $5,614.
• Big bank IRD: the posted 5-year rate in March 2024 was 6.84%, so their discount was 1.85%. Today’s posted rate for a two-year term is about 5.77%. Take off the same 1.85% and the comparison rate is 3.92%. The IRD works out to about $11,636.
• Other lender IRD: if the lender compares against a current rate of 4.35%, the IRD is about $6,960.

That is a gap of more than $4,600 on the same balance and the same rate, just because of how the lender does the math. But it doesn’t always go that way. A borrower who signed at 4.79% in September 2024 would pay about the same under either method today. The size of your original discount and where posted rates sit right now both matter, which is why it’s worth running your own numbers rather than relying on a rule of thumb.

Why breaking just for a lower rate rarely pays

An IRD is designed to give the lender back roughly the interest it loses when you leave. In the example above, switching to 4.35% would save the borrower about $6,765 in interest over the 29 months left. The penalty at a non-bank lender would be about $6,960, and at a big bank about $11,636. Either way, breaking costs more than it saves, and that is before legal, discharge and appraisal fees.

That pattern is common. When the penalty is an IRD, the savings and the penalty tend to cancel out. Breaking usually makes financial sense in a few situations:

• You have a variable rate. Three months’ interest is often much smaller than the savings from a better rate or a refinance.
• You are refinancing for another reason. Taking out equity, consolidating high-interest debt or restructuring after a separation can be worth far more than the penalty.
• Your term is nearly over. The IRD shrinks every month. Close to renewal, three months’ interest is often the larger number, and many lenders let you renew early within about 120 days of maturity with no penalty.

Don’t forget the costs that sit on top of the penalty. Discharge fees, legal fees and sometimes an appraisal can add a few hundred to a couple of thousand dollars. Our breakdown of mortgage discharge fees in Ontario covers what to expect.

How to use the calculator

1. Find your balance and rate. Both are on your latest mortgage statement or in your online banking.
2. Choose fixed or variable, and who holds your mortgage. The six big banks use the posted-rate method. Most other lenders use today’s rates.
3. Enter when your term started and how long it is. The calculator works out how long you have left and looks up the posted rates for you.
4. Add a rate you could get today. We fill in an estimate based on the 5-year Government of Canada bond yield. A real quote from a broker will be more accurate.
5. Add any prepayment you can make first. Most mortgages let you pay down 10% to 20% of the original amount each year without penalty. Doing that before you break lowers the balance the penalty is charged on.

If you have your original mortgage paperwork, you can open “Posted rates used in the bank calculation” and type in your lender’s exact figures.

Options besides breaking

If the numbers don’t work, you may still have choices:

• Blend and extend. Your lender blends your current rate with today’s rate and extends your term, with no penalty.
• Port your mortgage. If you are moving, most lenders let you take your mortgage, and your rate, to the new home.
• Wait for renewal. Every month you wait, the IRD gets smaller. Sometimes the cheapest move is a plan for renewal day.

Get an exact answer

The calculator gives a solid estimate, but only your lender’s payout statement shows the exact penalty. Before you sign anything, ask your lender for one, and compare it with what you’d save across the market, not just at your own bank.

That comparison is what a broker does. If you’re thinking about breaking, refinancing or switching, get a free quote and we’ll tell you honestly whether the move is worth it, or whether waiting will save you more.