Big banks calculate IRD with “posted” rates and your original discount, which can make penalties much larger than expected. Check your lender’s method and ask for an exact payout statement.
How to use the Mortgage Penalty Calculator
- Mortgage type
- Outstanding mortgage balance
- Current mortgage rate
- Comparison rate for the remaining term
- Months remaining in the term
- Portion being prepaid
Results update as you type, and every field accepts the units shown in its menu.
How it works
Choose the mortgage type, enter the balance, your rate, the lender’s comparison rate for the remaining term and the months left.
Tips
- Get a written loan estimate and compare the APR, not just the interest rate.
- Include property tax, insurance, HOA fees and maintenance in your monthly budget.
- A larger down payment lowers the payment and can remove mortgage insurance.
- Rates change daily – use a current quote for the most accurate result.
Common mistakes to avoid
- Looking only at the monthly payment instead of the total cost of the loan.
- Forgetting closing costs and fees.
- Assuming home prices always rise.
Inputs explained
| Field | What to enter |
|---|---|
| Mortgage type | Choose one: Fixed-rate closed, Variable-rate closed, Open |
| Outstanding mortgage balance | Amount in your currency |
| Current mortgage rate | In % |
| Comparison rate for the remaining term | In % |
| Months remaining in the term | A number |
| Portion being prepaid | In % |
What each result means
- Three months’ interest = [Outstanding mortgage balance]×[Portion being prepaid]÷100×[Current mortgage rate]÷100×3÷12
- Interest rate differential = max([Outstanding mortgage balance]×[Portion being prepaid]÷100×([Current mortgage rate] – [Comparison rate for the remaining term])÷100×[Months remaining in the term]÷12, 0)
Example values
How the main result changes when Outstanding mortgage balance changes and everything else stays at the example values above:
| Outstanding mortgage balance | Estimated prepayment penalty |
|---|---|
| 175,000 | 4,812.5 |
| 262,500 | 7,218.75 |
| 350,000 | 9,625 |
| 437,500 | 12,031.25 |
| 525,000 | 14,437.5 |
| 700,000 | 19,250 |
Formula
3 months' interest = balance × current rate × 3 ÷ 12IRD = balance × (contract rate − comparison rate) × months remaining ÷ 12Fixed closed: penalty = max(3 months' interest, IRD); variable closed: 3 months' interest; open: noneWorked example
Inputs — Mortgage type: Fixed-rate closed; Outstanding mortgage balance: $350,000; Current mortgage rate: 5.2 %; Comparison rate for the remaining term: 4.1 %; Months remaining in the term: 30; Portion being prepaid: 100 %.
Results — Three months' interest = $4,550.00; Interest rate differential = $9,625.00; Estimated prepayment penalty = $9,625.00.
Frequently asked questions
How is a mortgage penalty calculated in Canada?
Usually the greater of three months' interest and the IRD for fixed rates.
What is the IRD?
The interest the lender loses because rates have fallen since you signed.
Can I avoid the penalty?
Use your prepayment privileges, port the mortgage or wait for renewal.
What formula does the Mortgage Penalty Calculator use?
3 months' interest = balance × current rate × 3 ÷ 12.