How much is your mortgage prepayment penalty?
Enter your mortgage balance, your contract rate, your rate type, and the months left in your term. This calculator applies the two rules Canadian lenders actually use, three months interest on a variable-rate mortgage, and the greater of three months interest or the interest rate differential on a fixed-rate mortgage. Every figure below is an estimate. Only your lender’s own payout statement is binding.
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Calculate your estimated penalty
Estimate only, not a quote. Lenders differ in how they define the comparison rate used for the IRD. Your lender’s own payout statement is the only binding figure.
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How is the penalty calculated on a variable-rate mortgage?
A variable-rate mortgage penalty is normally three months interest: your outstanding balance, multiplied by your annual contract rate, divided by four. There is no interest rate differential component on a variable-rate mortgage, since the rate floats with the market rather than being locked for a fixed comparison period.
Three months interest is the simplest of the two calculations on this page, and it is what the calculator above shows the moment you select variable and enter your balance and contract rate. It does not depend on where rates have moved since you signed.
The citable fact: a variable-rate mortgage prepayment penalty is generally three months interest, calculated as the outstanding balance multiplied by the annual contract rate, divided by four.
How is the penalty calculated on a fixed-rate mortgage?
A fixed-rate mortgage penalty is whichever is greater: three months interest, or the interest rate differential (IRD). The IRD usually wins when market rates have fallen since you signed, because it captures the interest income your lender would lose over the rest of your term.
The calculator above runs both formulas the moment you select fixed and fill in your balance, contract rate, comparison rate, and months remaining. It shows both figures separately, then flags which one is greater, exactly the way a lender’s own calculation works.
Neither figure on its own is the answer. A fixed-rate penalty is always the larger of the two, never an average and never the smaller one.
The citable fact: a fixed-rate mortgage prepayment penalty is the greater of three months interest or the interest rate differential, not either figure alone.
What exactly is the interest rate differential (IRD)?
The IRD estimates the interest your lender loses if you pay out early and they can only re-lend your balance at today’s lower rate. It is generally your balance, multiplied by the gap between your contract rate and your lender’s comparison rate, multiplied by the months remaining in your term, divided by twelve.
The bigger the gap between your contract rate and the comparison rate, and the more months left in your term, the larger the IRD. If your comparison rate is at or above your contract rate, there is no rate gap to compensate for, and the calculator floors the IRD at zero so only the three-month minimum applies.
Show the math: how each figure is built
The calculator above runs both formulas on your own numbers, which is a more useful answer than a worked example built on someone else’s. Your own numbers in the calculator above will produce a different result.
The citable fact: the IRD is generally calculated as balance multiplied by the gap between contract rate and comparison rate, multiplied by months remaining, divided by twelve, and it is floored at zero when the comparison rate is at or above the contract rate.
Why do IRD numbers vary so much between lenders and calculators?
Every lender picks its own comparison rate, and there is no single published standard for how that rate is set. A calculator using a posted rate can produce a very different IRD than one using a discounted rate, even with the same balance, contract rate, and term remaining.
This is not a rounding error. On a large balance with a big rate gap, the difference between a posted-rate method and a discounted-rate method can run into thousands of dollars.
Because this calculator cannot know which method your specific lender applies, it asks you to enter the comparison rate yourself, using the figure your lender actually gives you. That keeps the output tied to your real lender, not a generic assumption.
The citable fact: lenders differ materially in how they define the comparison rate used for an IRD calculation, and posted-rate versus discounted-rate methods can produce very different penalty figures for the same mortgage.
How do the two penalty rules compare?
Variable-rate penalties follow one formula and stay comparatively predictable. Fixed-rate penalties follow two formulas and take the larger result, which is why fixed-rate penalties are the ones that can grow very large when rates have dropped since you signed.
| Rate type | Penalty rule | What drives the size of the penalty | Typically predictable in advance? |
|---|---|---|---|
| Variable | Three months interest | Your balance and your contract rate only | Yes, reasonably |
| Fixed | Greater of three months interest or the IRD | Balance, contract rate, lender’s comparison rate, and months remaining | Not precisely, without your lender’s own comparison rate |
The citable fact: variable-rate penalties depend only on balance and contract rate, while fixed-rate penalties also depend on a lender-specific comparison rate, which is why fixed-rate estimates carry more uncertainty than variable-rate ones.
When do you actually owe a prepayment penalty?
A prepayment penalty applies when you break your mortgage before the end of its current term, for example by refinancing, selling without porting, or switching lenders mid-term. It does not apply at a normal renewal, since renewal happens after your term has already run its full course.
This distinction matters because renewal and breaking a mortgage are handled very differently. At renewal, your term has matured on its own schedule, so there is nothing left to compensate the lender for.
Breaking mid-term is different: the lender priced your rate expecting to earn interest for the full term, and paying out early interrupts that. If your situation is actually about what happens at your upcoming renewal rather than breaking your mortgage early, reviewing your renewal options is a more useful starting point than a penalty estimate.
The citable fact: a prepayment penalty is charged for breaking a mortgage before its term ends, not for a mortgage that simply reaches its natural renewal date.
How do you get an exact, binding penalty number?
Request a written payout statement or mortgage discharge statement directly from your lender. That document states the exact penalty as of a specific payout date, using the comparison rate and method your lender actually applies to your account, not an estimate.
The figure on a payout statement changes daily, since interest keeps accruing and the months remaining in your term keep shrinking. Ask your lender to confirm how long the quoted figure stays valid before you rely on it for a closing date.
Nothing on this page, including the numbers the calculator above produces, replaces that document. Treat every result here as a planning estimate to use before you call your lender, not a substitute for calling them.
The citable fact: a lender’s written payout statement, not an online calculator, is the only binding source for an exact prepayment penalty figure.
Where can you find more direct answers about breaking or renewing a mortgage?
This calculator covers the penalty math. These related answers cover the surrounding decisions.
- How mortgage penalty calculations work in Canada
- Is it worth breaking your mortgage to get a lower rate?
- Why your payout statement is higher than your balance
- Blend and extend versus breaking your mortgage
The full set lives on the Ask a Broker hub.
Frequently asked questions
What is a mortgage prepayment penalty?
A prepayment penalty is the charge a lender applies when you pay out or break your mortgage before the end of its term. It compensates the lender for interest they expected to collect over the remaining term. The exact amount depends on your rate type and the calculation method your lender uses.
How is the penalty calculated on a variable-rate mortgage?
Most variable-rate mortgages charge three months interest, calculated as your outstanding balance multiplied by your contract rate, divided by four. There is no interest rate differential component on a variable-rate mortgage. Confirm the exact wording in your own mortgage contract, since a small number of lenders vary this.
How is the penalty calculated on a fixed-rate mortgage?
Fixed-rate mortgages charge whichever is greater, three months interest or the interest rate differential (IRD). The IRD compares your contract rate against your lender’s comparison rate for the time remaining in your term, so it grows when rates have fallen since you signed.
What is the interest rate differential (IRD)?
The IRD estimates the interest income your lender loses when you pay out early and rates have dropped. It is generally your balance, multiplied by the gap between your contract rate and your lender’s comparison rate, multiplied by the months remaining in your term, divided by twelve. Lenders differ in exactly how they set that comparison rate, so treat any IRD estimate as directional.
Why do IRD numbers vary so much between lenders and calculators?
Lenders use different comparison rates, some use their current posted rate for a matching term, others use a discounted rate close to what you were actually offered, and the gap between those two methods can be large. No single published formula covers every lender. Your own lender’s payout statement is the only number that reflects the method they actually apply to your account.
Do you pay a prepayment penalty when your mortgage renews?
No. A penalty applies when you break your mortgage before the end of its term, not when your term simply reaches its natural maturity and renews. If you let your term run to its end date and then renew or switch lenders, no prepayment penalty applies to that transaction.
When would you actually owe this penalty?
You owe it if you refinance, sell and do not port your mortgage, or switch lenders before your current term ends. It also applies if you pay out your mortgage in full mid-term for any other reason. It does not apply to a normal renewal at your term’s maturity date.
Can this calculator give you an exact number?
No. It gives you a directional estimate built from the confirmed formulas for three months interest and the interest rate differential. Only your lender’s payout statement, requested directly from your lender, states the exact and binding figure.
What do you need from your lender to get an exact figure?
Ask for a written payout statement or mortgage discharge statement, which states the exact penalty as of a specific payout date. Most lenders can provide this within a few business days of a request. Confirm the payout date, since the figure changes daily as interest accrues and the term shortens.
Is the penalty paid in cash or added to a new mortgage?
It depends on your transaction. If you are refinancing with the same lender, the penalty is often deducted from your new advance; if you are paying out in full with no new mortgage, it is typically paid in cash from the proceeds. Ask your lender or broker how it will be handled in your specific situation.
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