What it costs to break your mortgage
Selling, refinancing or switching lenders mid-term? Estimate the penalty before you commit.
Mortgage break penalty estimator
A closed mortgage locks in your rate - and locks you in too. Leave before the term ends and the lender charges a penalty to recover the interest it expected. Knowing the rough size of that penalty is the difference between a smart refinance and an expensive mistake.
The two ways it's calculated
For a variable-rate mortgage the penalty is almost always three months of interest - simple and relatively small. For a fixed-rate mortgage the lender charges the greater of three months interest or the interest rate differential (IRD). The IRD is its estimate of lost interest: your balance times the gap between your rate and a comparison rate, times the months remaining. When rates have fallen since you signed, the IRD is usually the bigger - sometimes much bigger - number.
Why the bank's number is worse than this estimate
Big banks compute the IRD against their posted rates rather than the discounted rate you actually negotiated. That inflates the differential and can push the penalty thousands higher than a fair calculation would. It is the single most common reason borrowers are shocked at their payout quote - so treat the figure above as a floor, and always get the lender's exact number in writing.
Is it still worth breaking?
A penalty is only half the equation. If today's rates are low enough, the interest you would save can outweigh it. Run the savings side on our refinance break-even page, compare it to the penalty here, and you will have a clear answer rather than a guess.
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Frequently asked questions
What is a mortgage prepayment penalty?
A fee charged when you break a closed mortgage before the end of its term - by selling, refinancing, or switching lenders early. For fixed rates it is the greater of three months interest or the interest rate differential (IRD); for variable rates it is usually just three months interest.
What is the IRD penalty?
The interest rate differential is the lender's estimate of the interest it loses by you leaving early: roughly your balance times the gap between your rate and a comparison rate, times the months left. It can be thousands of dollars and applies to fixed-rate mortgages.
Why is my bank's penalty so high?
Major banks calculate IRD against their posted rates rather than the discounted rate you actually pay, which inflates the differential and the penalty. Some non-bank lenders use a fairer calculation. This is why two lenders can quote very different penalties on the same balance.
How can I avoid the penalty?
Wait until renewal, port your mortgage to a new property, use your annual prepayment privileges, or check whether refinancing savings outweigh the penalty. Always get an exact payout quote from your lender first - estimates only get you in the ballpark.
Is breaking my mortgage ever worth it?
Sometimes. If rates have dropped enough, the interest you save can exceed the penalty. Compare the penalty here against the savings on our refinance page before deciding.