Mortgage Penalty Calculator

Two penalties, and you always get the expensive one

Fixed-rate penalties are the greater of three months' interest or the IRD — the lender picks whichever costs you more. Three months' interest is simple: balance × rate ÷ 4. The IRD multiplies your balance by the rate gap and the time remaining, and it's the reason "I'll just pay the penalty" turns into a five-figure cheque. Variable-rate mortgages skip the IRD entirely — one of the underappreciated advantages in the fixed vs variable decision.

The posted-rate trick

Big banks compute the IRD gap using their inflated posted rates, not the discounted rate anyone actually pays — widening the gap and the penalty. Monoline lenders use realistic comparison rates, which is why identical mortgages can differ 2–3× in penalty between lenders. Your contract's exact formula governs; this calculator uses the standard balance × gap × time version.

Shrink it before you sign the break

The penalty is computed on the balance at the moment you break. Exercise your annual prepayment privilege — typically 15–20% of the original principal — a few days before discharging, and the penalty applies to the smaller balance. On a 20% privilege, that's 20% off the penalty, shown above as the prepay-first saving.

When breaking is still worth it

If rates have fallen far, the lifetime savings can swamp the penalty — or if you're consolidating expensive debt into a cheaper mortgage. Run the full break-even, including fees, on the refinance calculator, and read the penalty math guide before calling the lender.