Breaking a mortgage in Canada can be a complex and costly decision, and it's important to carefully consider all of your options before making a decision.
There are several reasons why a borrower might decide to break their mortgage in Canada:
To switch to a lower interest rate: If interest rates have dropped since you took out your mortgage, you might be able to save money by switching to a new mortgage with a lower interest rate.
To pay off the mortgage faster: If you have extra cash on hand, you might decide to break your mortgage and take out a new one with a shorter term in order to pay off your debt faster.
To sell the property: If you need to sell your property and pay off the mortgage, you’ll need to break the mortgage and pay the penalty.
To change lenders: If you’re unhappy with your current lender or if you’ve found a better mortgage deal with another lender, you might decide to break your mortgage and switch to a new lender.
To refinance for home renovations: If you need to borrow money for home renovations or other expenses, you might decide to break your mortgage and take out a new one with a higher borrowing limit.
To change the terms of the mortgage: If your financial situation has changed since you took out your mortgage, you might decide to break the mortgage and negotiate new terms with your lender, such as a longer amortization period or a lower monthly payment.
It’s important to note that breaking a mortgage in Canada typically involves paying a penalty, which can be substantial depending on the outstanding balance and the length of the term. Therefore, it’s important to carefully consider all of your options before making a decision
Here are some things to consider if you're thinking about breaking your mortgage:
Fees: Breaking a mortgage in Canada typically involves paying a penalty, which is often calculated as a percentage of the outstanding mortgage balance. This penalty can be substantial, depending on how much you owe and how long you’ve had the mortgage.
Alternatives: Before you decide to break your mortgage, it’s important to consider whether there are other options that might be more suitable for your situation. For example, you might be able to refinance your mortgage to get a lower interest rate, or you might be able to negotiate a new payment plan with your lender.
Timing: The timing of when you break your mortgage can also have an impact on the fees you’ll have to pay. For example, if you break your mortgage within the first few years, you’ll typically have to pay a higher penalty than if you wait until you’re closer to the end of your term.
Consider your credit: Breaking a mortgage can also have an impact on your credit score, as it may be considered a negative event by credit agencies. This could make it more difficult to get approved for future loans or credit cards.
When is the best time to break your mortgage?
The best time to break your mortgage will depend on your individual circumstances and financial goals. Here are a few things to consider when deciding whether to break your mortgage:
Interest rates: If interest rates have dropped significantly since you took out your mortgage, it might be a good time to break your mortgage and switch to a new one with a lower rate.
Timing: The timing of when you break your mortgage can also impact the fees you’ll have to pay. If you break your mortgage within the first few years, you’ll typically have to pay a higher penalty than if you wait until you’re closer to the end of your term.
Your financial situation: If you have extra cash on hand or if you’ve recently received a significant increase in income, you might be able to afford a higher monthly payment or a shorter mortgage term.
Your future plans: If you’re planning to sell your property or move to a new home in the near future, it might make sense to break your mortgage rather than carrying it over to a new property.
Ultimately, the best time to break your mortgage will depend on your specific circumstances and financial goals. It’s a good idea to speak with a financial advisor or a mortgage broker to explore all of your options and determine the best course of action for your situation.
What does it cost to break a fixed rate mortgage in Canada?
The cost of breaking a fixed rate mortgage in Canada may include an IRD (Interest Rate Differential) penalty, which is a fee that is intended to compensate the lender for any lost interest resulting from the early termination of the mortgage.
The IRD penalty is typically calculated as the difference between the interest rate on your current mortgage and the current market rate for mortgages with a similar term, multiplied by the outstanding balance and the number of months remaining in the term.
For example, if you have a mortgage with a balance of $500,000 and a term of 5 years remaining, and the current market rate for a similar mortgage is 3% while your current mortgage rate is 4%, the IRD penalty might be calculated as follows:
IRD penalty = ($500,000 * (4% – 3%)) * 60 months = $500,000 * 1% * 60 months = $30,000
It’s important to note that the IRD penalty is just one of the potential costs involved in breaking a mortgage in Canada. You may also have to pay other fees, such as legal fees and discharge fees, depending on the specific terms of your mortgage contract. It’s a good idea to carefully review the terms of your mortgage contract and speak with your lender to get a clear understanding of all of the costs involved.
What does it cost to break a variable rate mortgage in Canada?
The cost of breaking a variable rate mortgage in Canada may vary depending on the specific terms of your mortgage contract and your lender’s policies. In general, you can expect to pay a penalty for breaking a mortgage in Canada, which is typically calculated as 3 months of interest on the loan.
It’s important to note that breaking a mortgage in Canada can be a complex and costly decision, and it’s important to carefully consider all of your options before making a decision. If you’re thinking about breaking your mortgage, it’s a good idea to speak with a financial advisor or a mortgage broker to explore all of your options and determine the best course of action for your situation.
Here are some recent articles you might like
Co-Ownership Mortgage Canada: What Lenders Won’t Tell You
Getting a co-ownership mortgage in Canada is possible, but it requires a completely different approach than buying a condo or a house. Most major banks
Bank of Canada Rate Decision: What June 2026 Means for Your Mortgage
The Bank of Canada rate June 2026 decision arrives on June 10, 2026, and this one is less predictable than any decision in the past
Your First Home in Ontario Starts Here — Let’s Get You the Right Mortgage
Buying your first home is one of the biggest financial decisions you’ll ever make. It can feel overwhelming — between land transfer taxes, mortgage stress
Your Mortgage Is Renewing in Ontario. Don’t Sign the First Offer.
Your lender will send a renewal notice 30 to 120 days before your term ends. It will look official. It will feel like something you
Calgary Mortgage Broker: More Lenders, Better Rates, and Straightforward Advice
Finding the right mortgage in Calgary is not just about the rate. It is about working with someone who understands the Alberta market, knows which
Buying in Canmore? Here Is What You Need to Know About Canmore Mortgages
Canmore is one of the most desirable real estate markets in Canada. It is also one of the most complex to finance. High property values,
