Mortgage Prepayment Penalty Calculator
A variable-rate mortgage with a $300,000 balance at 5.0%, 18 months left in the term, pays a 3-month interest penalty of $3,750.00. A fixed-rate mortgage with a $400,000 balance at 5.5% and 24 months left, breaking against a 4.0% comparison rate, pays the greater of 3 months' interest ($5,500.00) or the IRD ($12,000.00) — here that's $12,000.00. Enter your own mortgage below to compare all three methods side by side — every lender's exact formula differs.
$10,500.00 penalty (FCAC rule)
Fixed-rate mortgages pay the greater of 3 months' interest ($4,812.50) or the IRD ($10,500.00) — here that's the IRD amount.
All 3 methods side by side
| Method | Comparison rate used | Penalty |
|---|---|---|
| 3 months' interest | — | $4,812.50 |
| IRD — simple | 4.00% | $10,500.00 |
| IRD — posted-rate (big-bank method) | 4.00% | $10,500.00 |
Big banks typically use the posted-rate method, which almost always produces a higher penalty than the simple IRD a monoline lender would charge on the same mortgage.
Methodology per the Financial Consumer Agency of Canada (FCAC / canada.ca — mortgage prepayment penalties, consulted 2026-07-17): variable = 3 months' interest; fixed = the greater of 3 months' interest or the interest rate differential (IRD). Every lender applies its own contractual formula — this is a generic estimate, not what your specific lender will charge. Federal rules require every lender to provide an official penalty calculator: use it for a binding number before you act. How we calculate →
The FCAC rule: 3 months' interest for variable, the greater of two methods for fixed
The Financial Consumer Agency of Canada's published methodology is simple at the top level: break a variable-rate mortgage and you pay 3 months' interest on the balance, full stop. On a $300,000 balance at 5.0%, that's $3,750.00 (balance × rate ÷ 4).
Break a fixed-rate mortgage and the rule is "the greater of" two numbers: 3 months' interest, or the interest rate differential (IRD). On a $400,000 balance at 5.5% with 24 months remaining and a 4.0% comparison rate, 3 months' interest is only $5,500.00 but the IRD is $12,000.00 — so the IRD wins, and that's what you pay.
How the IRD is actually calculated
IRD = balance × (your contract rate − a comparison rate) × (months remaining ÷ 12). The comparison rate is meant to represent what the lender could re-lend your money at today, for the remaining term. If rates have risen since you locked in, the IRD can come out negative — it's floored at zero, and you simply pay the 3-month interest instead. On a $250,000 balance at 4.5% with the comparison rate now at 5.0% (rates went up), the IRD is $0 and the penalty falls back to 3 months' interest: $2,812.50.
Why big banks' penalties are often much higher: the posted-rate method
This is the part most borrowers never see coming. Monoline and many smaller lenders compare your contract rate against the real current rate they'd charge a new customer today. Several large banks instead compare it against their posted rate for the remaining term, minus the discount you originally received off THAT bank's posted rate at the time — not the real market rate. Since posted rates run well above the rates banks actually lend at, this method routinely produces a much bigger penalty for the identical mortgage.
Example: a $350,000 balance at a 6.0% contract rate, 30 months remaining, where the bank's current posted rate for that term is 5.5% and you got a 1.0% discount at origination. The posted-rate comparison rate becomes 5.5% − 1.0% = 4.5%, giving an IRD of $13,125.00 — versus what a simple market-rate comparison might produce. This is exactly why the calculator above shows both IRD methods side by side.
This is an estimate — your lender's contract is the final word
Every lender writes its own prepayment penalty formula into your mortgage contract, and the fine print varies: some use a different day-count, some round differently, some define "comparison rate" in ways that don't match either method above exactly. Federal rules require every federally regulated lender to provide its own official prepayment penalty calculator — always confirm the real number with your lender's tool or a mortgage statement before you act on this estimate.
Frequently asked questions
How is a mortgage prepayment penalty calculated in Canada?
Variable-rate mortgages pay 3 months' interest on the balance. Fixed-rate mortgages pay the greater of 3 months' interest or the interest rate differential (IRD) — the difference between your contract rate and a current comparison rate, applied to the balance and the months remaining in your term. This is the methodology published by the FCAC.
What is the IRD (interest rate differential)?
IRD = balance × (contract rate − comparison rate) × (months remaining ÷ 12). It estimates the interest the lender loses by re-lending your prepaid balance at today's lower rate for the rest of your term. If the comparison rate is higher than your contract rate (rates rose), the IRD is zero.
Why is my bank's penalty so much higher than I expected?
Several big banks calculate the IRD comparison rate using their current POSTED rate for the remaining term, minus the discount you got at origination — not the real rate they'd actually lend at today. Posted rates run well above real lending rates, so this "posted-rate method" typically produces a much larger penalty than a simple market-rate IRD would.
Do variable-rate mortgages ever pay an IRD penalty?
No — variable-rate mortgages pay 3 months' interest only, regardless of how rates have moved. The IRD calculation only applies to fixed-rate mortgages.
Is this calculator's number what my lender will actually charge?
No — treat it as an estimate. Every lender's mortgage contract defines its own exact formula (day-count conventions, which comparison rate, rounding), and federal rules require every lender to provide its own official calculator. Always confirm with your lender before prepaying, refinancing, or breaking your mortgage.
Researched & verified by the Calcuris Data & Research Team. How we build and check our tools →