When it comes up
FCAC says lenders will usually use the IRD when your mortgage rate is higher than the current rate and you signed your contract less than five years ago.
Estimate your penalty in the calculator →
The first rate
According to FCAC, the lender can start from the posted rate when you signed, or your current or discounted rate as described in the contract.
The second rate
FCAC lists the current posted rate for a term of similar length, or that posted rate minus the discount you were originally offered.
The arithmetic
The lender works out the interest left to pay on your term at both rates. The difference between the two amounts is the IRD. The calculator uses a simplified version: amount × rate gap × months left ÷ twelve.
Checking a quote
Federally regulated lenders must show prepayment terms in an information box at the start of the agreement and tell you which factors set the penalty. Compare that box with the figure you are given, and ask about anything unclear.