Mortgage Prepayment Penalty Calculator (3 Months' Interest vs IRD)
Breaking a closed mortgage before the end of its term usually costs a prepayment penalty. The Financial Consumer Agency of Canada (FCAC) says the penalty is usually the higher of three months' interest on what you owe or the interest rate differential (IRD). This calculator shows both.
Calculator
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Estimated prepayment penalty
$3,000
Three months' interest is higher
| Method | Amount |
|---|---|
| 3 months' interest | $3,000 |
| Interest rate differential (IRD) | $0 |
For closed fixed-rate mortgages. Variable-rate penalties are usually 3 months' interest. Lenders use their own IRD method and may add administration, discharge and reinvestment fees; only your lender can give the exact amount.
Three months' interest
Your balance times your interest rate, for three months. With a $200,000 balance at 6%, that's $3,000.
Interest rate differential
The IRD estimates the interest the lender loses for the rest of your term because rates have fallen. It's the difference between your rate and the lender's comparison rate, applied to your balance for the months left. In FCAC's example, a $200,000 balance at 6%, with 36 months left and a comparison rate of 4%, gives an IRD of $12,000, so the penalty is $12,000.
Why your lender's number may differ
- Lenders choose their own comparison rate: often the current posted rate for a similar term, sometimes minus the discount you got originally.
- Some lenders use the posted rate when you signed rather than your contract rate.
- Administration, discharge and reinvestment fees can apply, and you may have to repay any cash back.
Frequently asked questions
Can I avoid the penalty?
You may be able to port the mortgage to a new home, use your prepayment privileges first, wait until renewal, or ask about a blend-and-extend. FCAC suggests asking your lender for the exact cost before deciding.
Does this apply to variable-rate mortgages?
Variable-rate penalties are usually three months' interest. Check your contract.
Sources
Rules are summarized in our own words from official publications. Check the source and talk to your lender or a licensed professional before making a decision.
Informational only, not financial advice. Data as of the release snapshot generated 2026-11-12.