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Mortgage prepayment penalty calculator: 3 months’ interest vs IRD

Breaking a fixed-rate mortgage costs the greater of three months’ interest or the interest rate differential. This calculator includes the posted-rate discount method big banks use, which is where large penalties come from.

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Use the rate for the term closest to your months remaining (e.g. 2-year rate for 30 months left). Big banks use their posted rate here.
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Posted-rate lenders subtract your original discount from the comparison rate, which raises the penalty. Enter 0 if your lender doesn't.
Estimated penalty
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Three months' interest
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Interest rate differential (IRD)
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Rate spread used
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Check your commitment letter. Lenders define the comparison rate differently, and some charge admin or discharge fees on top. Ask your lender for a written payout statement before you act.

How prepayment penalties work

If you break a closed mortgage early, by selling, refinancing or paying it off, your lender charges a penalty.

Variable rate

Usually three months' interest on the outstanding balance at your current rate.

Fixed rate

Usually the greater of three months' interest or the interest rate differential (IRD). The IRD estimates the interest the lender loses by re-lending your money at today's lower rate for the rest of your term:

IRD = balance × (contract rate − comparison rate) × months left ÷ 12

Banks that use posted rates subtract the discount you originally received from today's posted rate. That shrinks the comparison rate and can multiply the penalty. Monoline lenders often use their actual offered rates, which usually gives a smaller IRD.

Frequently asked questions

Why is my bank’s penalty so much higher than this estimate?

Most big banks calculate the IRD with posted rates and subtract the discount you originally received. Enter that discount to see its effect. Your payout statement is the final word.

Can I avoid the penalty?

Common options include porting the mortgage to a new home, blending and extending with the same lender, using your annual prepayment privilege first, or waiting until renewal.

Do variable-rate mortgages have an IRD?

Usually not. Most variable-rate mortgages charge three months’ interest.