Breaking Your Mortgage at the Big Banks: How Each Calculates the Penalty

The prepayment penalty for breaking a closed mortgage is set by your contract, and each bank describes its own method on its website or in a disclosure document. This page sets out what RBC, TD, Scotiabank, BMO and CIBC say, adds National Bank and First National for comparison, and works through why the discount adjustment matters. For the general method, see how mortgage penalties are calculated; it is part of the refinancing and home equity hub.

The general rule: Breaking a closed mortgage, paying it off early or prepaying more than your privileges allow usually costs the higher of 3 months' interest and the interest rate differential (IRD) on a fixed rate, and typically 3 months' interest on a variable rate; your mortgage contract sets the exact method and comparison rate, and a federally regulated lender must tell you how it calculates the penalty.

Each lender’s method below is quoted or closely paraphrased from its own page, as read on October 1, 2026. Lenders can change these terms, and your own mortgage documents take precedence.

RBC Royal Bank

• Variable rate, closed: 3 months' interest on the amount prepaid.
• Fixed rate, closed: the greater of three months' interest on the amount prepaid at the interest rate; or interest for the remainder of the term on the amount prepaid, calculated using the interest rate differential (IRD).
• IRD comparison rate: RBC’s posted rate on the prepayment date for a mortgage with a term similar to the time remaining in the term and having the same prepayment options as the mortgage less your rate reduction.
• RBC’s IRD calculation uses present value and the declining balance, and RBC says: “The use of these financial concepts in the calculation reduces the amount calculated using the interest rate differential.”

Source: RBC, Understanding Mortgage Prepayment Charges. RBC’s prepayment charge calculator page says its closed term allows prepayments of up to 10% of the original mortgage balance once per anniversary year.

TD

• Variable rate, closed: typically three months of interest.
• Fixed rate, closed: the greater of three months' worth of interest or the Interest Rate Differential (IRD) amount.
• IRD comparison rate: the posted interest rate for a similar mortgage, minus any rate discount you received.
• TD's three months of interest is the interest you would owe over 90 days on the amount being prepaid, using your annual interest rate.

Sources: TD, What happens if you break your mortgage and TD Explains: What is an IRD?

Scotiabank

• Variable rate, closed: 3 months' interest costs on the amount you want to prepay, at your variable interest rate at the time of the prepayment or your cap rate (if there is one).
• Fixed rate, closed: the higher of 3 months' interest costs at the mortgage rate on the amount you want to pre-pay and the interest rate differential.
• IRD comparison rate: the current posted interest rate for a new fixed rate closed term mortgage with a term that is closest to the remaining term of your existing mortgage (rounded up if exactly between 2 terms), less any rate discount you received on your existing mortgage.
• Both sides of the IRD are present values. The first is “The present value of all interest you would have paid from the date of prepayment until the maturity date on the amount you want to prepay at the mortgage interest rate”; the second is the same interest at the comparison rate above.

Source: Scotiabank, What you need to know about mortgages and mortgage prepayment charges (PDF).

BMO

• Variable rate, closed: three months' interest calculated at the interest rate applicable to the mortgage on the day of prepayment.
• Fixed rate, closed: the higher of three months' interest calculated at the applicable fixed interest rate or an amount calculated using interest rate differential (IRD).
• IRD comparison rate: in BMO’s words, “the fixed interest rate we currently charge for a mortgage similar to your mortgage for the remaining term of your mortgage reduced by any rate discount you may have received”.
• In BMO's example, a 5 year term with 44 months left is compared with BMO's 4 year (48 months) term.
• Near the end of the term: within the last three months before the end of the mortgage term, the prepayment charge will be equal to the interest on the amount you are prepaying from the date of prepayment to the end of the mortgage term.

Source: BMO, Your mortgage prepayment options (PDF).

CIBC

• Variable rate, closed: 3 months' interest on the amount you prepay, calculated at the CIBC Prime Rate.
• Fixed rate, closed: the greater of 3 months' interest on the amount you prepay, calculated at your annual mortgage interest rate plus any discount you received, and the interest rate differential (IRD) on the amount you prepay.
• IRD comparison rate: CIBC's current posted interest rate for the comparison mortgage identified in your mortgage documents, compared with your current rate plus any interest rate discount you received.
• CIBC adds your original discount to your rate, for both the 3 months' interest and the interest rate differential, instead of subtracting it from the posted rate.

CIBC’s own example: a borrower at 6.50% who received a discount of 0.50% has three months’ interest worked out at 7.00%. On $100,000, that is about $1,750.00 (CIBC’s page shows $1,749.99).

Source: CIBC, What are mortgage prepayment charges?

What the five methods have in common

• On a closed fixed-rate mortgage, all five describe the usual two-method rule: On a fixed-rate mortgage the penalty is usually the higher of 3 months' interest on what you still owe and the interest rate differential (IRD).
• On a closed variable-rate mortgage, all five describe three months’ interest (TD says “typically”).
• All five adjust the IRD comparison for the discount you received: RBC, TD, Scotiabank and BMO subtract it from the current rate, and CIBC adds it to your rate.
• RBC, Scotiabank and BMO use the term closest or similar to your remaining term (TD says “a similar mortgage”; CIBC uses the comparison mortgage named in your documents), so the comparison rate, and the penalty, can change as the months pass and as posted rates change. RBC’s page says so directly.

For terms longer than 5 years, a federal limit also applies: Under section 10 of the Interest Act, a mortgage that isn't due until more than 5 years after its date can be paid off at any time after those 5 years with no more than 3 months' further interest; this doesn't apply to a mortgage given by a company or other corporation.

Two other lenders for comparison

National Bank. Its prepayment guide (dated 2022-12-16) describes the penalty on a closed fixed-rate loan as the higher of 3 months of interest and the interest differential plus 1 month of interest at the posted rate, with that month of interest capped at a maximum of $500. The interest differential is the difference between the posted rate and the standard rate, calculated on the remaining term, where the posted rate is the fixed rate published by the National Bank at the beginning of the term for a residential mortgage loan with the same characteristics as your mortgage loan. On a variable-rate loan it is 3 months of interest, at the standard rate. Source: National Bank, Mortgage prepayment and prepayment charges guide (PDF).

First National (a mortgage lender that isn’t a bank). Its fixed-rate penalty is the greater of either three month's interest on the amount being prepaid, or an Interest Rate Differential (IRD), and it defines the IRD as the difference between your current mortgage interest rate and the current First National interest rate on a replacement mortgage for the time remaining on your mortgage term; its definition doesn’t mention a discount adjustment. On an adjustable rate it is three months interest on the amount being prepaid (closed adjustable-rate mortgage). With less than three months remaining before a closed mortgage matures, a per-diem prepayment charge applies for the duration of the remaining term. Source: First National, Understanding prepayment charges.

Worked example: what the discount adjustment does

The rates below are hypothetical, chosen to show the mechanics; they are not any lender’s current rates. The calculation is the simplified one (balance × rate gap × years left); a lender that uses present value gets a lower IRD.

The difference comes from the comparison rate, not the formula: subtracting a discount lowers the comparison rate and widens the gap. If your current rate were below the comparison rate, there would be no IRD and the penalty would be three months’ interest.

Lowering or avoiding the penalty

The Financial Consumer Agency of Canada suggests using your prepayment privileges every year and before you break (penalties are then based on a lower balance), waiting until the end of the term, porting the mortgage if you’re buying a new home, and shopping around at renewal. A blend-and-extend avoids the penalty, although fees may apply. Prepayment allowances differ by bank and product; see prepayment privileges in Canada.

Whether paying a penalty to get a lower rate saves money depends on the rate gap, the time left and the fees; should you break your mortgage for a lower rate works through that comparison.

Getting your penalty figure

A federally regulated lender, such as a bank, must tell you how it calculates the penalty and which factors it uses. According to the Financial Consumer Agency of Canada, federally regulated financial institutions, like banks, have a prepayment penalty calculator on their website. Banks that are members of the Canadian Bankers Association have agreed to follow the federal Code of Conduct for Federally Regulated Financial Institutions: Mortgage prepayment information, which includes a toll-free number for prepayment questions, and you can ask for a written statement with the amount of the charge (FCAC). A quoted amount can change if you prepay on a different date, because the remaining term and the posted rates change.

Related pages

• Refinancing and home equity hub
• How mortgage penalties are calculated
• Blend and extend
• Mortgage penalty calculator
• Fixed vs variable mortgage