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Canada Mortgage Penalty Calculator

Updated

This calculator estimates the prepayment penalty for breaking a closed mortgage before the end of its term: 3 months’ interest, the interest rate differential (IRD), and the cap the Interest Act sets after 5 years. It is part of our refinancing and home equity guide. For the full explanation of each method, see how a mortgage penalty is calculated, and for what each big bank discloses, see breaking a mortgage at the big five banks.

How lenders set the penalty

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. 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.

Mortgage penalty calculator

The calculator opens with the example the Financial Consumer Agency of Canada (FCAC) uses on its prepayment penalty page. Replace the inputs with the figures from your mortgage statement and your lender’s posted rates.

Mortgage balance owing
Your mortgage interest rate
Months left in your term
Rate type
Lender's current posted rate for a term close to your months left
Discount off the posted rate you got at signing (0 if your contract doesn't use one)
Term longer than 5 years, and more than 5 years since the mortgage date?
Estimated prepayment penalty
Balance owing
3 months' interest
Comparison rate (posted rate minus discount)
Rate difference
Interest rate differential (IRD)
Estimated penalty

What the calculator computes:

  • 3 months’ interest = balance × your rate × 3 ÷ 12.
  • Comparison rate = the posted rate you enter minus the discount you enter (leave the discount at 0% if your contract compares with the posted rate alone).
  • IRD = (your rate − comparison rate) × balance × months left ÷ 12, or $0 if your rate is not above the comparison rate. This is the simplified form FCAC uses in its example; a lender that works out the interest on its own payment schedule can get a somewhat different figure.
  • Fixed rate: the higher of the two. Variable rate: 3 months’ interest.
  • If you answer yes to the Interest Act question, the estimate is capped at 3 months’ interest.

The estimate leaves out administration, appraisal, reinvestment and discharge fees, and any cash back you may have to repay; FCAC lists these as other possible costs of breaking a mortgage.

FCAC’s example, worked through

FCAC’s example mortgage has a balance of $200,000 at 6%, with 36 months left in a 5-year term, and the lender’s current posted rate for a 36-month term is 4%.

  • 3 months’ interest: $200,000 × 6% × 3 ÷ 12 = $3,000
  • Rate difference: 6% − 4% = 2%
  • IRD: $200,000 × 2% × 36 ÷ 12 = $12,000
  • Estimated penalty, the higher of the two: $12,000

These are the same amounts FCAC’s page shows ($3,000 and $12,000). FCAC adds that you may also have to pay an administration fee.

Example: a comparison rate with a discount

When a contract compares your rate with the current posted rate minus the discount you were originally given, the discount lowers the comparison rate and raises the IRD. The Bank of Canada’s posted 3-year conventional mortgage rate for chartered banks was 6.05% as of 2026-09-30. Your own lender’s posted rate is the one that counts.

Suppose a $300,000 balance at 5.00% with 36 months left, a contract that subtracts the 1.50% discount given at signing, and a lender whose posted 3-year rate equals the Bank of Canada figure above.

  • Comparison rate: 6.05% − 1.50% = 4.55%
  • Rate difference: 5.00% − 4.55% = 0.45% (an IRD only arises when this is above zero)
  • IRD: $300,000 × 0.45% × 36 ÷ 12 = $4,050
  • 3 months’ interest: $300,000 × 5.00% × 3 ÷ 12 = $3,750
  • Estimated penalty, the higher of the two: $4,050

(Each percentage point of rate difference is $300,000 × 1% × 36 ÷ 12 = $9,000 of IRD, and $300,000 × 5% ÷ 12 = $1,250 is one month’s interest; the calculations above use those two figures.)

Ways to lower or avoid a penalty

FCAC suggests using your prepayment privileges every year (a later penalty is then based on a lower balance), waiting until the end of the term to prepay, porting the mortgage to a new home if your lender allows it, and shopping around at renewal. Lenders may also allow a blend-and-extend, which extends your term early without a prepayment penalty, though administrative fees may apply. To decide whether a lower rate is worth the penalty, see should you break your mortgage for a lower rate and the mortgage break-even guide.

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Sources

The figures and rules on this page come from these sources, last checked against them between September 29, 2026 and October 2, 2026. How we check facts.