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Refinance penalty calculator: IRD vs three months' interest

Breaking a fixed-rate mortgage early usually costs the higher of three months' interest or the interest-rate differential (IRD), says the FCAC; variable rates usually cost three months' interest. On a $400,000 balance at 5% with three years left and a 4% comparable rate, that's $5,000 vs $12,000: the penalty is $12,000.

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What will it cost to break my mortgage to refinance?

The higher of three months' interest and the interest-rate differential, as FCAC describes it.

Rate type
If your lender uses the posted-rate method, it subtracts your original discount from today's rate, which raises the IRD.
Estimated prepayment penalty$4,890Three months' interest is higher
Three months' interest
$4,890
Interest-rate differential
$3,100
Comparable rate used
4.58%
Ways around itAsk your lender about a blend-and-extend (adds new money at a blended rate without breaking), a HELOC behind the mortgage, or waiting until renewal, when there's no penalty. Use your annual prepayment privilege first to shrink the balance the penalty is charged on.

Estimate, not advice. Educational estimate only, not financial, mortgage, tax or legal advice. Lenders, insurers and governments set their own rules and can change them; confirm with a licensed professional before you decide.

Estimated penalty $4,890 (3 months' interest).

Penalty by time left in the termThree months' interest vs the interest-rate differential.$0$1K$3K$4K$5K6 mo12 mo18 mo24 mo30 mo
Show the numbers
Penalty by time left in the term
3 months' interestIRD
6 mo$5K$620
12 mo$5K$1K
18 mo$5K$2K
24 mo$5K$2K
30 mo$5K$3K
Assumptions & sources

Assumptions

  • FCAC: the penalty is usually the higher of 3 months' interest on what you owe or the IRD; lenders usually use the IRD when your rate is above current rates.
  • IRD = balance × (your rate − comparable rate) × years left. With the posted-rate method, comparable = today's posted rate for the time left − (posted rate when you signed − your rate).
  • Your lender's mortgage contract defines the exact method and rates.

Sources

  1. Financial Consumer Agency of Canada — Reduce mortgage prepayment penalties (effective October 15, 2025). Checked .

How this tool works

Three months' interest is the balance × your rate ÷ 12 × 3. The IRD is the balance × (your rate − the lender's current rate for the time left) × years left. Some lenders, notably big banks, compare against their posted rates minus the discount you got when you signed, which makes the comparable rate lower and the IRD larger: enter your original posted rate to see that effect.

A refinance pays the penalty from your new money; a HELOC behind your mortgage doesn't break it. The equity calculator shows both side by side.

Frequently asked questions

How is a mortgage penalty calculated in Canada?

The FCAC says it's usually the higher of three months' interest on what you owe or the interest-rate differential. Lenders usually use the IRD when your rate is above current rates and you signed less than five years ago.

Can I refinance without a penalty?

At renewal there's no penalty. Mid-term, options include a blend-and-extend with your current lender, a HELOC behind the mortgage, or using your yearly prepayment privilege first to shrink the balance.

Primary sources

  1. Financial Consumer Agency of Canada — Reduce mortgage prepayment penalties (effective October 15, 2025). Checked .
Equity calculatorRefinance vs HELOC after the penalty.Open →When the numbers don't add upRefinancing gaps and fixes.Open →Renewal and switchingNo penalty, sometimes no appraisal.Open →