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Breaking a fixed mortgage costs the greater of 3 months' interest or the IRD — and how the IRD is calculated depends on your lender. Choose yours below.
Canada TD, RBC, Scotiabank, BMO, CIBC, National Bank Free
Canadian prepayment penalty estimate — compares three-month interest vs IRD for fixed mortgages (CAD).
Sets the IRD method this lender publishes.
Optional context; penalty math uses the outstanding balance.
Your current mortgage rate.
Used in IRD: contract rate minus this rate, if positive. The lender’s current rate for a term closest to your remaining term. Your lender can confirm the rate used for IRD.
Mortgage type
Estimated penalty
$13,120
Fixed — higher of IRD or 3-month interest
3-month interest
$5,140
IRD penalty
$13,120
How this applies: For your fixed-rate mortgage, the interest rate differential (IRD) is higher than three months of interest, so the IRD amount is the estimated penalty.
Other lender (generic) method: Generic method: IRD uses your contract rate minus the lender's current rate for a term close to your remaining term. Many monoline lenders and credit unions compare with their current rate rather than a posted rate less discount — your mortgage contract defines the exact rate. Source: FCAC — Reduce mortgage prepayment penalties
| Step | Value |
|---|---|
| IRD comparison rate | 3.50% |
| Monthly interest | $1,713.33 |
| IRD per month | $546.67 |
| Remaining months | 24 |
| 3-month interest penalty | $5,140.00 |
| IRD penalty (total) | $13,120.00 |
| Final penalty | $13,120.00 |
Penalty estimates are approximate. Actual penalties vary by lender and mortgage contract. Contact your lender for an exact penalty quote.
The same mortgage can cost very different amounts to break. On a $300,000 fixed mortgage at 4.50% with 24 months left, a big bank using its posted rate less your discount would charge about $6,000, while a lender comparing with its current 4.00% rate would charge about $3,375.
| Lender | Rate gap for IRD | 3 months' interest | IRD | Penalty |
|---|---|---|---|---|
| TD | 1.00% | $3,375 | $6,000 | $6,000 |
| RBC | 1.00% | $3,375 | $6,000 | $6,000 |
| Scotiabank | 1.00% | $3,375 | $6,000 | $6,000 |
| BMO | 1.00% | $3,375 | $6,000 | $6,000 |
| CIBC | 1.00% | $4,500 | $6,000 | $6,000 |
| National Bank | 1.00% | $4,500 | $6,500 | $6,500 |
| Other lender (generic) | 0.50% | $3,375 | $3,000 | $3,375 |
Hypothetical inputs: $300,000 balance, 4.50% contract rate, 24 months left, a 1.50% discount received at signing (posted rate then 6.00%), today's posted 2-year rate 5.00%, and 4.00%as the other lender's current 2-year rate. CIBC and National Bank charge 3 months' interest at the higher posted rate; National Bank adds one month of interest (max $500) to the IRD. Simple-interest estimates: banks that use present value will quote a little less.
When you break a closed mortgage before the end of its term, the lender is entitled to compensation for interest they expected to earn. Canadian contracts usually describe two building blocks: a simple three-month interest charge on your outstanding balance, and an interest rate differential (IRD) that compares your contract rate to a replacement or "comparison" rate for a term similar to what you have left. The actual formula, discounting conventions, and the exact comparison rate are defined in your commitment letter—this page models the common high-level structure so you can reason about orders of magnitude before you call your lender for a formal quote.
Fixed-rate mortgagestypically use the greater of IRD and three months of interest. If market rates have fallen relative to your contract, IRD often becomes the binding number; if your rate is still competitive versus the lender's current offerings, three months of interest may dominate or IRD may be zero after the spread is floored. Variable-rate mortgages are different in practice: borrowers are usually charged three months of interest rather than an IRD-style calculation, which is why the calculator treats variable products as three-month interest only.
Why big-bank penalties look shocking.TD, RBC, Scotiabank and BMO publish the same approach: the comparison rate is the bank's current posted rate for the term closest to your remaining term, minus the discount you received when you signed. CIBC adds your discount to your rate instead, and National Bank uses the posted rate at signing — both give the same rate gap. Because posted rates sit well above the rates people actually pay, this gap is usually wider than at a lender that simply compares with its current rate. Mortgages from other lenders (monolines, credit unions) use the generic method here; check your contract for the exact comparison rate.
When breaking still makes sense.Refinancing to a materially lower rate, consolidating expensive debt, or selling and porting can justify a penalty if the net benefit over your remaining months exceeds the upfront cost—after tax effects and fees. Portability, blend-and-extend options, and lump-sum prepayments can shrink the balance subject to penalty. Use the numbers here as a planning aid only; your lender's discharge department will issue the binding figure.
For a closed fixed-rate mortgage, lenders charge the greater of three months' interest or the interest rate differential (IRD). For a closed variable-rate mortgage, the penalty is usually three months' interest. Your mortgage contract sets the exact formula.
The interest rate differential is the gap between your rate and a comparison rate for a term close to the time left on your mortgage, applied to the amount you prepay for the rest of the term. It compensates the lender for interest it loses when you break the mortgage.
TD, RBC, Scotiabank and BMO compare your rate with their current posted rate minus the discount you got when you signed. CIBC and National Bank use equivalent posted-rate comparisons. Posted rates are well above the rates most borrowers actually pay, so subtracting your original discount makes the comparison rate low and the IRD large. Many other lenders compare with their current rate instead.
All three charge the greater of three months' interest or IRD on a closed fixed mortgage. The IRD comparison rate is the bank's current posted rate for the term closest to your remaining term, minus the rate discount you received at signing. RBC and Scotiabank discount the result to present value, so their quote is usually a little lower than a simple estimate.
National Bank charges the greater of three months' interest at the posted rate, or the interest differential (posted rate at signing minus today's standard rate for the remaining term) plus one month of interest capped at $500.
You may be able to avoid or reduce the penalty by porting your mortgage to a new property, blending and extending your rate with the same lender, using your annual prepayment privileges before breaking, or waiting until the last months of the term.
It can be worth breaking your mortgage if the interest savings from a lower rate over the remaining term exceed the penalty and switching costs. Use this calculator to estimate the penalty, then compare it with the savings.
Compare today's rates before breaking: 5-year fixed mortgage rates in Canada · all mortgage rates.