For a closed mortgage term in Canada
What could it cost to break your mortgage early?
Copy the balance, your rate and the maturity date from your mortgage statement, then add the comparison rate your lender uses. You see the interest-based and the differential-based penalty side by side, together with the fees you were quoted.
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This is a calculation tool, not a lender or a mortgage broker. It never tells you which offer to take.
Open term: FCAC explains that an open mortgage can be broken without a prepayment penalty. Other fees can still apply.
For a variable rate the penalty is typically three months of interest. FCAC does not describe variable terms separately, so check the prepayment section of your contract.
The result is a calculation on your figures. It is not a guaranteed saving or an offer.
The lower figure uses your comparison rate as entered. The higher one also applies the discount method, if you entered a posted rate. Your contract decides which method applies.
Interest at your contract rate on the amount you entered, for three months. A simple approximation.
Your rate minus the comparison rate, applied to the amount for the time left in the term. Zero when the comparison rate is equal to or above your rate.
Add the comparison rate to see the IRD.
Your discount is the posted rate when you signed minus your contract rate. The comparison rate is lowered by that discount, which widens the gap.
FCAC says lenders usually use the IRD when your rate is above the current rate and you signed less than five years ago, which matches the dates you entered.
Interest Act, section 10: your term runs longer than five years and that period has passed since the mortgage date. The section allows payment with three months further interest in lieu of notice. It does not apply to corporate borrowers.
How the estimate changes as the term runs down
Same amount and rates as you entered, at six months and twelve months from now, with less time left. A scenario, not a forecast: rates and your balance will move.
Payback scenario at the rate you entered to test
At the test rate the monthly payment is not lower, so the difference never covers the cost.
Enter a test rate and the amortization left to see this scenario.
Both payments use the amount and the amortization you entered, with a fixed rate stated half-yearly, not in advance. This is a what-if on your own numbers, not an offer, and it does not tell you whether to break.
Basis: your own figures and the simplified methods FCAC describes. The rate and costs you can actually get may differ.
This calculation is not a loan offer or a personal recommendation about breaking your mortgage.
For illustration only. Not a mortgage offer or a commitment to lend. Cindrus is not a lender or a mortgage brokerage, does not deal in mortgages and passes no information to lenders or brokers.
- Three months' interest is simple interest on the amount at your contract rate.
- The IRD is the rate gap times the amount times the time left, without discounting. A lender that discounts the remaining payments arrives at a smaller figure, so this is an upper estimate.
- The penalty is the larger of the two methods, the general case FCAC describes.
- No prepayment privilege is deducted unless you entered a smaller amount.
- The payback scenario uses a monthly payment with interest compounded half-yearly, not in advance.
Your next step.
Take the result with you.
Free. No account.
- Write down the figures you used: you find them under «Understand the number».
- Ask what it costs in total, not only what the payment will be.
- Ask whether the rate is fixed and what can change it.
- Ask for the offer in writing, so you can compare it calmly.
- Ask what is not included in the figure.
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From your contract to an estimate in three steps
Find your contract
The rate, the end date of the term and the prepayment section are the figures you need. A federally regulated lender has to tell you how it calculates the penalty.
Enter the comparison rate
The interest rate differential compares your rate with a second rate. Your contract says which one; you type it in.
Read both methods
Three months' interest and the IRD appear on separate rows, so you can see which one drives the estimate.
What federal law and regulation say about prepaying
Most of the penalty depends on your contract. A few rules come from federal law and apply to everyone.
The five-year rule
Under section 10 of the Interest Act, once five years have passed on a mortgage whose term runs longer than that, you can pay it off with three months further interest in lieu of notice. Corporate borrowers are excluded.
The formula must be disclosed
For loans from federally regulated institutions, the disclosure has to describe the components of any formula used for a prepayment charge (Financial Consumer Protection Framework Regulations, section 40(1)(l)).
Open terms differ
FCAC explains that an open mortgage lets you break the contract without a prepayment penalty. A closed one normally carries a penalty.
Why breaking a closed term has a price
A closed term fixes the conditions until a set date. Paying the balance before then, moving the mortgage to another lender, or prepaying more than your privileges allow can trigger a charge that FCAC calls a prepayment penalty, also known as a prepayment charge or breakage cost.
FCAC describes the penalty as usually the higher of three months interest on what you owe and the interest rate differential. How your own lender sets the second rate is written in your contract, which is why the calculator asks you for it instead of guessing.
Other names for the same question
Mortgage break penalty · prepayment charge · breakage cost · IRD calculator · cost to break a mortgage in Canada.
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What is a prepayment penalty?
A charge your lender may apply if you pay more than your privileges allow, break the contract, transfer the mortgage before the term ends or repay it in full early, including when you sell. That is how FCAC lists it.
Is it three months' interest or the IRD?
FCAC says the penalty will usually be the higher of the two. The calculator shows both and marks the larger. Your contract sets out which method applies to you.
Where does the comparison rate come from?
From your lender's method. FCAC lists the current posted rate for a similar term, with or without the discount you were originally given. Your contract or a penalty statement from your lender shows which one.
Why can two lenders quote different penalties on the same balance?
Because they can use different rates in the differential. A method built on posted rates and your original discount usually gives a wider gap than one built on your contract rate. The calculator shows the range.
Does the Interest Act limit my penalty?
Section 10 applies when a mortgage term is longer than five years and that period has passed. Then the extra charge is three months of interest. For shorter terms, your contract sets the penalty.
Is the result my lender's figure, or advice?
Neither. The calculator applies a simplified method to your numbers. The amount you would pay comes from your lender, and the choice to break the term stays with you.
The penalty calculator costs nothing.
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