Mortgage Penalty Calculator 2021

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Mortgage Break Penalty Calculator

Are you looking to pay off your mortgage early? Or refinance the terms of your mortgage at a lower interest rate? Maybe you sold your home and purchasing a new home, in which a mortgage transfer will apply. Whatever the case, you most likely will have to pay a mortgage break penalty set by your lender. Whatever the situation, our calculator will help you determine the cost to break your mortgage so you can be confident about your mortgage decisions.

What is the remaining balance on your mortgage?

$

What is the term-length and type of your current mortgage?

What is your current mortgage interest rate?

%

If applicable, what was the rate discount you received when you signed your current mortgage agreement?

%
The day you signed your mortgage, your lender may have provided you with a discount. You may be paying 3.25% but the posted rate on that day was 3.75%, a discount of 0.5%. If you are unaware of any discount, you can skip this step.

When did your current mortgage start?

Who is your current mortgage lender?

What is TD Bank's current interest rate for a 3-year fixed rate mortgage?

%
We have populated this field for you with our most up to date data. For information on why we need this field see Interest Rate Differential
Your estimated mortgage break penalty is...
$2,437.502.44k

How is my mortgage penalty calculated?

$300,000300k
Remaining Mortgage Balance
3.25%
Current Mortgage Interest Rate
3/12
3-Months Interest
=
$2,437.5
Prepayment Total
The calculators and content on this page are provided for general information purposes only. WOWA does not guarantee the accuracy of information shown and is not responsible for any consequences of the use of the calculator.

Fixed Rate Mortgage Penalty Interest Rate

For fixed-rate mortgages, lenders usually use the greater of three months of interest or an interest rate differential (IRD). Each lender has their own IRD calculation. The interest rate that they use for their IRD is usually based on either their current advertised mortgage rates or their posted rates, which can often be much higher.

Advertised Rate IRDPosted Rate IRD
RBC
RBC
TD
TD
Scotiabank
Scotiabank
CIBC
CIBC
BMO
BMO
HSBC
HSBC
Peoples Bank
Peoples Bank
motusbank
motusbank
Simplii Financial
Simplii
Laurentian
Laurentian
Desjardins
Desjardins
CMLS
CMLS
Equitable
Equitable Bank*
Tangerine
Tangerine
Manulife
Manulife
Alterna Savings
Alterna Savings
First National
First National
MCAP
MCAP
DUCA
DUCA
* Equitable Bank’s IRD depends on your mortgage product

Variable Rate Mortgage Penalty Interest Rate

Most lenders determine the mortgage break penalty for a variable rate mortgage by calculating three months of interest. The interest rate that they use can depend from lender to lender, but is usually either your current mortgage interest rate or the lender's prime rate.

Based On Your Mortgage RateBased On the Lender's Prime Rate
RBC
RBC
TD
TD
Scotiabank
Scotiabank
BMO
BMO
HSBC
HSBC
Equitable
Equitable Bank
First National
First National
motusbank
motusbank
Tangerine
Tangerine
MCAP
MCAP
National Bank
National Bank
Desjardins
Desjardins
CMLS
CMLS
DUCA
DUCA
Manulife
Manulife
Alterna Savings
Alterna Savings
Laurentian
Laurentian*
CIBC
CIBC
Peoples Bank
Peoples Bank
Simplii Financial
Simplii
Laurentian
Laurentian
* Laurentian’s 3 Months’ Interest is based on the greater of your mortgage rate or the current prime rate.

Mortgage Penalty FAQ

What does breaking my mortgage mean?

If you decide to end your mortgage before the prescribed term is up, then you are "breaking" your mortgage contract. For example, if you are 3 years into your 5-year fixed rate mortgage, and you find out that a lender is offering a significantly lower interest rate, then it is possible to break your mortgage early to sign a new mortgage with the discounted lender. But be aware, deciding to break your mortgage before the mortgage term ends is usually associated with penalties.

What is the difference between an open- and closed-term mortgage?

The major difference is the penalties associated with a closed-term mortgage. With an open-term mortgage you can pay off the entire mortgage amount whenever you want. You still have to pay your principal and interest amounts every month but you can make additional payments without having to pay a prepayment penalty (A penalty associated with a closed-term mortgage). These benefits are great but most people usually opt-in for a closed-term mortgage agreement for a couple reasons. First, an open-term mortgage usually has a higher set interest rate. And since most individuals don't plan on paying off their mortgage early, they decide to go for the lower closed-term rate.

That being said, a closed-term mortgage is one that you take out for a specified amount of time. In Canada, the standard term is about 5 years. As mentioned, the main difference with a closed-term mortgage is you don't have the freedom to payoff your principal when you want. Some closed-term agreements allow you to pay off 10%-20% of principal once a year but outside of that, you will have to pay your lender a penalty fee for doing so.

How much will it cost to break my mortgage?

This depends as there are many costs associated with breaking a mortgage. The most significant cost you will incure is from the prepayment penalty. Depending on your lender, the prepayment penalty may differ. We highly recommend going over your current mortgage contract or talking with an experienced mortgage broker to get advice before making any decisions.

The prepayment penalty will differ from lender to lender. But generally, there are two methods in calculating the penalty:

Method 1: 3-months of Interest

For breaking a variable rate mortgage contract, the penalty is usually 3-months of interest applied to the remaining principal of your mortgage at your currently set interest rate. This method also applies to a fixed rate mortgage, if the the 3-months of interest total is greater than the total gotten from the calculation described in method 2 below.

Method 2: Interest Rate Differential (IRD)

This method is applied to a fixed rate mortgage. The calculation is a bit more complicated. The penalty is the greater of either the total calculated by using Method 1, as described above, or the result of a calculation called the Interest Rate Differential (IRD). The IRD is the difference of interest that you owe to your lender for the remainder of your mortgage contract, calculated at two different rates. The first amount of interest owing is calculated at the non-discounted rate you originally signed your agreement. This is then subtracted by the amount of interest owing calculated at the closest posted rate your lender has at the current moment for the amount of time that is left on your agreement. For example, if you had 2 years left on your 5-year fixed rate, they would look up their most up to date 2-year fixed interest rate. We know, it's a bit confusing! Let us make it easier to understand by breaking it down into a scenarios:

You have a 5-year fixed rate mortgage with a current interest rate of 3.25%. Of those 5 years you have 3 years left on your agreement with a current principal value of $400,000. You decided to break your mortgage contract and so this is how the IRD is calculated.

  1. First the lender will get the non-discounted rate that was posted the day you signed your mortgage agreement 2 years ago. So you may be paying 3.25% but the actual rate was 4.0% on that day. Which means you got a discount of .75%.
  2. Next, the lender will see that you have 3 years left on your agreement and will find a similar product that they have, right now, to cover the remainder of your 5-year term. That being, a 3-year fixed rate mortgage let's say at a rate of 2.75%.
  3. Finally, the lender takes the difference of rates 4.0% and 2.75% (.04 - .0275 = .0125), divides that total by 12 to get the monthly intereset rate (.0125 divide 12 = .00104), multiplies the monthly interest rate value by the 36 months (3 years) you have remaining on your mortgage (.00104 x 36 months). Then, multiplies this 36 month amount by your $400,000 principal to get your prepayment penalty (.00104 x 36 months) x $400,000. Thus, you will pay around $15,000 as a prepayment penalty.
As you can see the penalty is not the most intuitive so please seek professional advice for the most accurate info on your lender.

How will the stress test affect you?

If you are breaking your mortgage and staying with the same lender, then you do not have to worry about the stress test.

But whenever you apply for a mortgage with a new lender you will have to go through the process of passing the stress test again to ensure that you can afford your mortgage monthly payments. The interest rate the lender will use is either your mortgage rate plus 2% or the Bank of Canada (BOC) benchmark rate. Whichever is higher. If you don't pass, you will not be able to qualify for the new mortgage.

Does it makes sense to break your mortgage?

It depends on your situation.

If you're trying to save money by pre-paying your mortgage or lowering your interest rate, then you should compare your potential savings to your mortgage pre-payment penalty. For fixed-rate mortgages, this penalty can be significant especially if you still have a few years left on your morgage.

If you are breaking your mortgage to refinance, then you should also consider other options such as HELOCs and second mortgages. They can let you borrow from the equity in your home without breaking your current mortgage.

Mortgage Penalties by Lender

Bank or LenderVariable Rate MortgageFixed Rate Mortgage
RBC
RBC
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
TD
TD
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Scotiabank
Scotiabank
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
CIBC
CIBC
3 Months’ Interest (at the CIBC Prime rate)
Greater of 3 Months’ Interest (at your current mortgage rate) or the IRD amount
BMO
BMO
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
HSBC
HSBC
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Equitable Bank
Equitable Bank
3 to 5 Months’ Interest*
Greater of 3 Months’ Interest or the IRD amount
Peoples Bank
Peoples Bank
3 Months’ Interest (at PBC’s Prime rate)
Greater of 3 Months’ Interest or the IRD amount
First National
First National
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
motusbank
motusbank
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Tangerine
Tangerine
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Simplii
Simplii
3 Months’ Interest based on the Simplii Prime Rate
Greater of 3 Months’ Interest or the IRD amount
MCAP
MCAP
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Meridian
Meridian
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Laurentian
Laurentian
Greater of 3 Month’s Interest based on your current annual mortgage rate or the current prime rate.
Greater of 3 Months’ Interest or the IRD amount
National Bank
National Bank
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Desjardins
Desjardins
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
CMLS
CMLS
Lesser of 3 Months’ Interest or, the remaining interest to be paid on your mortgage.
Greater of the IRD amount, and, the lesser of 3 Months’ Interest, or, the remaining interest to be paid on your mortgage.
DUCA
DUCA
Greater of 3 Months’ Interest at DUCA’s current posted rate and the difference in interest payable due to the difference between the quoted posted rate when the mortgage was signed and DUCA’s current posted rate for a mortgage with a comparable term.
Greater of 3 Months’ Interest or the IRD amount
Manulife
Manulife
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Alterna Savings
Alterna Savings
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Canadian Western
Canadian Western
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
First Ontario
First Ontario
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount
Investors Group
Investors Group
3 Months’ Interest
Greater of 3 Months’ Interest or the IRD amount

* Penalty for a Standard Equitable Bank Adjustable Rate Closed Term Mortgage is as follows:

  • 5 months’ interest during the first year of your term.
  • 4 months’ interest during the second year of your term.
  • 3 months’ interest after the second year of your term.

Penalty for an EQB Evolution Suite Adjustable Rate Closed Term Mortgage is 3 months' interest.

What are the reasons for breaking a mortgage?

Some scenarios:

  • The current interest rate on your mortgage is 4.2% and you have 2-years left on your 5-year fixed rate before you have to renew. You do some research and your bank is currently offering 3.1% on a 5-year fixed rate. Because of current events, you suspect that you won't be able to get this low rate a few years from now. You do the math and it looks like you'll save more money in the long run if you switch now.
  • You have a variable rate mortgage and you notice the rates are as low as you have ever seen them. So to lock in this new low rate you decide to switch to a fixed rate mortgage.
  • You have come into a large sum of money and want to use it to pay off $200,000 of your mortgage principal but can't because this amount is much higher than what is allowed in your mortgage contract. Thus, you must break your mortgage agreement to proceed.
  • You cannot afford your current mortgage monthly payments. The solution would be to get a new mortgage with a longer amortization period so the monthly payments are reduced.
  • You have a accumulated a significant amount of credit card debt that is accruing interest at a rate of 19.99%. Your financial advisor strongly suggests consolidating your high interest credit card debt into your mortgage by taking equity out your home and refinancing.

Posted Rates of Banks and Lenders

Number of Years:
Fixed or Variable:
Term Posted Rate
5-Year Fixed
Equitable3.89%
5-Year Fixed
BMO3.99%
5-Year Fixed
Canadian Western4.14%
5-Year Fixed
TD4.59%
5-Year Fixed
motusbank4.59%
5-Year Fixed
RBC4.79%
5-Year Fixed
Kawartha Credit Union4.79%
5-Year Fixed
CIBC4.79%
5-Year Fixed
ICICI5.14%
The calculators and content on this page are provided for general information purposes only. WOWA does not guarantee the accuracy of information shown and is not responsible for any consequences of the use of the calculator.