What does it cost to break my mortgage?

In Canada, breaking a fixed-rate mortgage early usually costs the higher of three months' interest or the interest rate differential (IRD). On a variable-rate mortgage, the penalty is commonly three months' interest. Your mortgage contract is what decides, so ask your lender for an exact figure before you act.

When a penalty applies

You "break" a mortgage when you pay it off or change it before the end of your term, the length of your contract. A break happens if you sell without porting the mortgage to a new home, refinance mid-term, or switch lenders before maturity.

At the end of the term, you can pay off or move the mortgage without a penalty.

Most mortgages also let you prepay a certain amount each year without penalty, through prepayment privileges such as lump-sum payments or payment increases. The prepayment limits are in your contract.

Lenders usually calculate the penalty in one of two ways, according to the Financial Consumer Agency of Canada (checked October 2026):

Three months' interest: roughly three months of interest on your balance at your rate.
Interest rate differential (IRD): the difference between your rate and the rate the lender charges today for a term close to your remaining term, applied to your balance for the time left.

Lenders calculate the IRD in different ways. Some use their posted rates (the advertised rates before discounts), which can make the IRD much larger than you might expect.

A worked example of a fixed-rate penalty

These figures use illustrative rates only, not quotes. The calculation is simplified; your lender's method may differ.

You owe $400,000 on a fixed mortgage at an illustrative 5%, with two years left in the term. The lender's current rate for a two-year term is an illustrative 4%.

Three months' interest: $400,000 × 5% ÷ 4 = about $5,000.
IRD: the difference is 1 percentage point. $400,000 × 1% × 2 years = about $8,000.

The penalty would be the higher, about $8,000. If rates had risen instead, the IRD could be zero, and three months' interest would apply. On a variable mortgage with the same balance and illustrative rate, the penalty would commonly be about $5,000.

Other costs of breaking

Beyond the penalty, a lender may charge a discharge or administration fee, and you may have legal and appraisal costs on the new mortgage. If your existing lender gave you a cash-back, part of it may have to be repaid.

Ways to reduce or avoid the penalty

Wait for maturity if maturity is close; the savings may outweigh the benefit of moving early.
Port the mortgage to your new home if you are moving and your lender allows it.
Blend and extend: some lenders combine your current rate with today's rate and extend the term instead of charging a penalty, and some let you add money at a blended rate.
Use your prepayment privileges first to lower the balance the penalty is calculated on, if your contract allows.

What to do next

To estimate your own penalty, try the penalty estimator; results are estimates only, not an offer or advice, and your contract governs. Or use our call-me-back form to talk through whether breaking makes sense.

Common follow-up questions

How do I find out my exact penalty?

Ask your lender for a written penalty statement for a specific date. The figure depends on the balance and rates on that day, so the figure changes over time.

Is it ever worth paying the penalty?

Sometimes, for example when the savings over the remaining term, or the cost of keeping high-interest debt, clearly exceed the penalty and costs. We can compare the cost of breaking with the cost of keeping your mortgage.

Can a new lender pay my penalty?

Some lenders offer incentives when you move, but they usually build the cost into the rate or terms. Compare the full cost, not just the incentive.