Should I break my mortgage for a lower rate or ride it out?

In Canada, breaking your mortgage pays off only when the interest you'd save over the rest of your term clearly beats the penalty plus the costs of moving. When the penalty is three months' interest and plenty of term is left, breaking can win. When the penalty is an interest rate differential (IRD), or renewal is only months away, riding it out usually costs less.

The comparison that decides whether to break

Your term is the length of your current contract. Breaking means ending the term early. On a fixed mortgage, the penalty is usually the higher of three months' interest or the IRD (source: Financial Consumer Agency of Canada, checked October 2026). The IRD compares your rate with the lender's current rate for the time left. On a variable mortgage the penalty is commonly three months' interest. Your contract governs.

Put two numbers side by side:

• What you save: the interest you would pay at your current rate for the rest of the term, minus the interest at the new rate.
• What breaking costs: the penalty, plus any discharge fee, legal and appraisal costs, and any cash-back you would have to repay.

Breaking can also make sense for reasons other than rate, such as consolidating expensive debt or selling. Breaking for debt or a sale needs the same side-by-side numbers.

A worked example of breaking a mortgage

These figures use illustrative rates only, not quotes. The IRD is simplified, interest is compounded semi-annually, and your lender's method may differ.

You owe $400,000 at an illustrative 6%, with three years left in the term and 22 years left on the amortization. A new three-year term is available at an illustrative 4.5%, keeping the same amortization.

Over the next 36 months you would pay about $68,681 in interest at the illustrative 6%, and about $51,317 at the illustrative 4.5%. Breaking saves about $17,364 in interest.

• If the penalty is three months' interest: $400,000 × 6% ÷ 4 = about $6,000. You come out roughly $11,364 ahead before moving costs. Breaking can make sense.
• If the penalty is an IRD: if the lender's current three-year rate is also an illustrative 4.5%, the gap is 1.5 points. $400,000 × 1.5% × 3 years = about $18,000, slightly more than the saving. Riding it out wins.

The IRD result is not a coincidence. An IRD is designed to recover much of the interest the lender loses when you leave.

Why breaking saves less as renewal gets closer

The closer you are to the end of the term, the less interest breaking can save. In the same example with only six months left, the interest saved would be about $2,931, while three months' interest is still about $6,000. Near renewal, waiting and switching at maturity, without a penalty, is usually cheaper.

The blend-and-extend option

Some lenders offer a blend-and-extend: instead of charging a penalty, they combine your current rate with today's rate and extend your term. You get part of the benefit of lower rates without paying a penalty up front. The blended rate and the terms vary by lender, so compare the blended offer against breaking and against waiting.

What to do next

Estimate your penalty with the penalty estimator, then put the offers side by side with the compare offers tool; results are estimates only, not an offer or advice. Or use our call-me-back form and we will run the numbers with you.