Breaking a $400,000 fixed mortgage at 5.20% with 30 months left would cost an estimated $11,000, or 2.75% of the balance. The same loan at a variable rate would cost $5,200. Put in your own balance, rate and months left and you get a figure for your mortgage.
How is a mortgage penalty worked out?
The calculator prices two things and shows you the bigger one. The first is three months of interest on what you owe. The second only applies to a fixed rate: the interest rate differential, or IRD. That takes your balance, multiplies it by the gap between your contract rate and a comparison rate, then by the years left in the term.
Variable mortgages skip the differential here, so the answer is three months of interest and nothing else. Lenders don’t all pick the comparison rate the same way, and your contract has the last word. So treat the result as a number to plan around, then ask for a quote in writing.
What does the penalty look like in different cases?
Each row below starts from the default $400,000 balance and 5.20% contract rate, and moves one thing.
| Scenario | Three months of interest | Differential | Penalty |
|---|---|---|---|
| Fixed, comparison 4.10%, 30 months left | $5,200 | $11,000 | $11,000 |
| Fixed, comparison 4.10%, 12 months left | $5,200 | $4,400 | $5,200 |
| Fixed, comparison 5.00%, 30 months left | $5,200 | $2,000 | $5,200 |
| Variable, any months left | $5,200 | Not used | $5,200 |
Walking through the $11,000
You owe $400,000 at a fixed 5.20%, with 30 months to go. Three months of interest is $400,000 times 5.20% divided by 12, times 3, which comes to $5,200. Your lender quotes a comparison rate of 4.10%, a gap of 1.10 points. Run that against $400,000 for 2.5 years and the differential is $11,000. It’s the bigger number, so it’s the estimate.
Now shorten the wait. With 12 months left the differential shrinks to $4,400, and three months of interest takes over at $5,200. The time remaining matters as much as the rate gap. If you can hold on until the last year of a term, the bill can fall by half.
Where do people go wrong?
Mostly on the comparison rate. It isn’t the rate in your renewal letter, and it isn’t the best rate you saw advertised. The field wants the figure for the time you have left, and only your lender can tell you what that is. Try a few values and watch how far the result moves, since the guess you make here is the biggest thing pushing the answer up or down.
The calculator also leaves out discharge fees, legal costs and any prepayment privileges that would cut what you owe first. Thinking of switching? Feed the penalty into the mortgage refinance calculator next to the savings from a new rate. If you’d rather pay the balance down without breaking anything, the mortgage prepayment calculator is the place to look. And if the term is nearly over, compare the result with the mortgage renewal calculator.
Where do the numbers come from?
You supply the balance, the rates and the months. The formulas are the two methods above. We couldn’t tie those rules to one official source, so read this page as a description of how the calculator works, not as law. The Financial Consumer Agency of Canada has a page on breaking a mortgage contract. This site has no connection with any government body, and what you see is an estimate.
Frequently asked questions
How does the calculator get its number?
It takes the higher of three months of interest and, on a fixed mortgage, the interest rate differential. A variable mortgage uses three months of interest only.
What's the comparison rate?
It's the rate your lender uses to price the time left in your term. Lenders set it their own way, so ask them for the number in writing.
Why is the penalty smaller with fewer months left?
The differential grows with the time remaining. In the default example, 12 months left instead of 30 takes it from $11,000 down to $5,200.
Are legal or discharge fees in the result?
No, only the penalty. Those other charges depend on your lender and your lawyer.
Can I count on the figure?
No. Your contract and your lender set the real amount, so use this to plan and then ask for a quote.
Sources and updates
Updated: . How we check rates · Editorial team · Updates
Estimate only. These figures are a planning estimate, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns, and we don't offer tax, legal or accounting services. We have no connection with the Canada Revenue Agency, Revenu Québec or any provincial government. Your real amounts depend on details this tool cannot see, so confirm them with an official source or a qualified professional before you act.