Mortgage Penalty Calculator

How this is calculated

Breaking a mortgage early usually triggers the greater of two figures. The first is three months' interest, calculated as balance × (contract rate ÷ 12) × 3. The second, used for fixed-rate mortgages, is the interest rate differential (IRD), calculated in the standard form as (contract rate − comparison rate) × balance × months remaining ÷ 12. If the comparison rate is at or above your contract rate, the IRD falls to zero and the three-months-interest figure applies.

For a variable-rate mortgage, the penalty is normally just three months' interest, so the IRD does not apply. For a fixed-rate mortgage, the IRD usually dominates when rates have fallen since you signed, because the lender is comparing your rate with what it could now charge on a new mortgage for the rest of your term.

Important limits on this estimate:

• The comparison rate is set by the lender and can be a posted rate, a discounted rate, or a bond-yield-based figure. Different lenders use different methods, and some use a different IRD formula altogether.
• Some lenders calculate the IRD with a present-value or reinvestment adjustment, which can produce a different number than this simple form.
• Penalties can be reduced or waived if you renew, blend, or move the mortgage with the same lender. Prepayment privileges may also reduce the balance used.

All figures are estimates for planning only, not a quote, pre-approval, or approval. Confirm the exact comparison rate and penalty with your lender before you break or refinance.