What Is the Penalty to Break Your Mortgage Early in Canada?

Updated August 2026 · HiveRewards

Breaking a closed mortgage before the term ends usually triggers a penalty. For a closed variable-rate mortgage it is typically 3 months' interest. For a closed fixed-rate mortgage it is the greater of 3 months' interest or the interest rate differential, called the IRD (Financial Consumer Agency of Canada). The difference matters enormously: 3 months' interest on a $400,000 balance at 5% is about $5,000, while an IRD penalty on the same mortgage can run several times that, depending on your lender and rates. You can calculate your own penalty in about a minute with current rates, free, no signup.

How is the 3 months' interest penalty calculated?

Simple math: your mortgage balance, times your interest rate, times three twelfths of a year.

This is the usual penalty for closed variable-rate mortgages, and it is the floor for closed fixed-rate mortgages. Open mortgages usually carry no prepayment penalty at all, which is what you pay for with their higher rate.

What is the IRD, and why can it be so much bigger?

The interest rate differential compensates the lender for the interest they lose when you break a fixed rate early. In plain terms: the gap between the rate you are paying and the rate the lender could charge today for the time left in your term, applied to your balance for that remaining time. The wider the gap and the longer the time left, the bigger the penalty.

The part most borrowers discover too late: lenders do not all calculate the IRD the same way. Many big banks calculate it from their posted rates minus the discount you originally received, which typically produces the largest penalties. TD uses its own reinvestment-rate method, which does not subtract your discount. Many brokers' lenders and monoline lenders calculate from current market rates instead, which typically produces the smallest. Two borrowers with identical balances and rates can face penalties thousands of dollars apart because of who holds their mortgage. This is exactly what our penalty calculator models: it handles all three: the big-bank posted-rate method, TD's reinvestment method, and the broker-lender market-rate method, using rates kept current: big-bank posted rates refresh automatically every month, and TD and broker rates are maintained by hand.

When do people break a mortgage early?

The common reasons:

1. Selling the home before the term ends, without porting the mortgage to a new one.
2. Refinancing to pull equity out or consolidate debt.
3. Switching lenders for a better rate mid-term.
4. Life changes: separation, relocation, a death in the family.

Breaking is not automatically a mistake. When today's rates are far enough below your contract rate, the monthly savings can outrun the penalty before the term would have ended anyway. That is a math question, not a feelings question, and the calculator runs the break-even for you: enter a new rate and it shows monthly savings, total savings, and how many months until the penalty is paid back.

Can the penalty be reduced or avoided?

Sometimes, and it is always worth asking before paying:

1. Porting. Moving your existing mortgage to your next home can avoid the penalty entirely, if your lender allows it and timelines line up.
2. Blend and extend. Your lender blends your old rate with today's rate into a new term instead of charging the full penalty.
3. Prepayment privileges. Many mortgages allow paying down 10 to 20 percent of the original mortgage amount each year without penalty. Using that room right before breaking shrinks the balance the penalty is calculated on.
4. Timing. The closer to the end of your term, the smaller the IRD tends to be.

Your lender's written payout statement is the authoritative number. Ask for one before you list your home or commit to a refinance, and treat any verbal estimate as an estimate.

What does breaking a mortgage have to do with buying?

Two things. First, if you are selling in order to buy, the break penalty belongs in your buying budget alongside closing costs and the down payment, because it is paid from the same pool of cash. Second, if the move ends in a purchase, the purchase itself can put money back in your pocket: home buyer cashback on a $450,000 purchase with minimum down runs about $2,646 combined, arriving within about 1 to 14 days of closing. Amounts are estimates and depend on the price, down payment, and participating professionals. How it works: cashback when buying a house in Canada. HiveRewards operates across Canada with the exception of Quebec.

The short version

1. Closed variable: typically 3 months' interest. Closed fixed: the greater of 3 months' interest or the IRD.
2. The IRD is where penalties get big, and big banks' posted-rate method usually produces larger penalties than broker lenders' market-rate method.
3. Porting, blend and extend, prepayment room, and timing can all shrink the bill.
4. Get the written payout statement before committing to anything.
5. Run your own numbers in the calculator. It handles all three calculation methods with rates kept current.

Calculate your mortgage break penalty