Mortgage penalty (IRD) calculator
Thinking of breaking your mortgage? Find out what it'll cost first. This compares three months' interest against the IRD — and shows how much extra the big-bank posted-rate method adds.
Their rate today for a term closest to your remaining months.
Your discount was 1.70%.
Charged as: Interest rate differential (IRD)
- Rate differential = your rate (4.79%) − comparison rate (1.59%) = 3.20%
- IRD = balance × differential × (months left ÷ 12) = $32,000
- Your penalty is the greater of that and three months' interest ($4,790) = $32,000
Estimate only. Every lender words its prepayment clause differently — some use posted rates, some use discounted rates, and comparison-term rounding varies. Your lender must give you an exact figure on request, and it's only valid for a short window.
Fixed-rate penalty = the greater of three months' interest or the IRD (balance × rate differential × months left ÷ 12). Variable-rate penalty is almost always just three months' interest.
Why big-bank penalties are so much larger
This is the part that catches people out. When you signed, your lender may have “posted” 6.49% and given you 4.79% — a 1.70% discount. To calculate the IRD, most big banks take today's posted rate for your remaining term and subtract that same 1.70% discount before comparing. That artificially lowers the comparison rate, widens the differential, and can turn a few thousand dollars of penalty into tens of thousands. Toggle the posted-rate method above to see the difference on your own numbers.
Frequently asked questions
How is a mortgage prepayment penalty calculated in Canada?
For a fixed-rate mortgage, the penalty is the greater of three months' interest or the interest rate differential (IRD). For a variable-rate mortgage it's almost always just three months' interest, which is one of the underrated advantages of going variable.
What is the IRD (interest rate differential)?
The IRD approximates the interest your lender loses when you break early. It's your remaining balance multiplied by the gap between your rate and the lender's current rate for a comparable term, multiplied by the months remaining divided by 12.
Why is my bank's penalty so much higher than I calculated?
Most big banks use their posted rate rather than the discounted rate you actually pay. They subtract your original discount from the comparison rate, which widens the differential and can multiply the penalty several times over. Monoline lenders typically use the simpler contract-versus-current comparison.
Can I avoid the penalty?
Sometimes. Porting your mortgage to a new property, using your annual prepayment privilege first to shrink the balance, or waiting until closer to renewal all reduce it. Some lenders also waive or blend the penalty if you refinance with them, so it's worth asking before you switch.
Related tools
Researching and writing about Canadian mortgages since 2026.
“Mortgage Penalty Calculator (IRD) — VaultNerd” — VaultNerd, https://www.vaultnerd.com/tools/mortgage-penalty-calculator, updated August 2026.
- Financial Consumer Agency of Canada — prepayment penalties
- Standard IRD formula: balance × rate differential × months remaining ÷ 12