Reinvestment Fee

A reinvestment fee is a charge some Canadian lenders apply when a borrower pays off a mortgage early, typically by breaking a closed mortgage before its maturity date. The lender is giving up a stream of interest income, so it charges a fee to offset the cost of putting that money back to work at current market rates.

How it relates to prepayment penalties

Most Canadian mortgages describe the cost of early payout as a prepayment penalty, calculated either as three months' interest or, on many fixed-rate mortgages, as the interest rate differential (IRD). A reinvestment fee is a different label for a similar idea: the lender measures what it loses when the returned principal is reinvested at a lower rate than the mortgage it replaced.

Terminology is not standardized across the industry. The same economic charge might appear in a contract as a prepayment charge, an early payout fee, or a reinvestment fee. Credit unions, some monoline lenders, and private lenders are among those that use the reinvestment fee wording. What matters is the formula written into your mortgage documents, not the name attached to it.

Why it matters to a borrower

If you plan to sell, refinance, consolidate debt, or switch lenders before your term ends, this charge can change the math on the whole decision.

Ask the lender for the exact calculation in writing before you sign.
Confirm whether the amount is based on your contract rate, the lender's current rate, or the number of months left in the term.
Check whether your prepayment privileges let you pay down part of the balance first, which can shrink the amount still subject to the charge.
Compare the total cost of leaving against the benefit of the new rate or new loan over the time you expect to keep it.

How the common charges differ

Charge	Typical basis
Three months' interest	Common on variable-rate mortgages
Interest rate differential	Common on fixed-rate mortgages, larger when rates have fallen
Reinvestment fee	Recovers interest lost when principal is reinvested at lower rates

When rates have fallen since you signed, a differential-based charge tends to be larger, because the lender must reinvest at a lower yield. When rates have risen, the gap is often smaller or disappears. A discharge fee may also apply when the mortgage is paid out and removed from title. The guide to breaking a mortgage early walks through the steps for getting a written payout statement.

Frequently asked questions

What is a reinvestment fee on a Canadian mortgage?

It is a charge some lenders apply when a mortgage is paid off before the end of its term. It is intended to recover the interest income the lender loses when the returned principal has to be reinvested at lower current rates. The exact wording and formula vary by lender, so read your mortgage documents.

Is a reinvestment fee the same as an interest rate differential penalty?

They are close cousins. Both compare your mortgage rate with the lender's current rate and charge for the difference over the remaining term. Some lenders call that calculation an interest rate differential; others label it a reinvestment fee. Confirm the formula your lender uses rather than relying on the name.

Which lenders charge a reinvestment fee?

It appears most often with credit unions, certain monoline lenders, and private lenders, though usage varies. Many chartered banks simply call the same charge a prepayment penalty. Because no single national rule sets the label, always ask for the payout figure in writing before you sell, refinance, or switch lenders.