Mortgage prepayment penalty calculator (IRD or 3 months' interest)
On a closed fixed mortgage you usually pay the higher of three months' interest or the interest rate differential (IRD); on a closed variable one, three months' interest. Big banks compare your rate with today's posted rate minus the discount you got when you signed, which makes the IRD bigger: on $420,000 at 5.39% signed in May 2024 with 30 months left, that's about $9,765, against $5,659 at a lender that uses its current rate.
Mortgage prepayment penalty calculator
Three months' interest or the interest rate differential, worked out both ways lenders do it.
The same mortgage, two ways of counting
| Measure | Big bank (posted-rate method) | Other lender (current-rate method) |
|---|---|---|
| Penalty | $9,765 | $5,659 |
| Interest rate differential | $9,765 | $840 |
| Three months' interest | $5,659 | $5,659 |
- Months left
- 30
- Three months' interest
- $5,659
- Your discount at signing
- 1.45%
- posted 6.84% − your 5.39%
- Paid off first with your privilege
- $0
Estimate, not advice. Educational estimate only, not financial, mortgage, tax or legal advice. Lenders, insurers and governments set their own rules and can change them; confirm with a licensed professional before you decide.
Big-bank method about $9,765; current-rate method about $5,659; 30 months left.
Show the numbers
| Posted vs average 5-year rates | Posted 5-year | Average new 5-year+ fixed |
|---|---|---|
| 2015 | 4.79% | 3.09% |
| 2016 | 4.64% | 2.86% |
| 2017 | 4.64% | 2.72% |
| 2018 | 5.14% | 3.33% |
| 2019 | 5.34% | 3.77% |
| 2020 | 5.19% | 2.97% |
| 2021 | 4.79% | 1.96% |
| 2022 | 4.79% | 2.61% |
| 2023 | 6.49% | 5.20% |
| 2024 | 6.89% | 5.67% |
| 2025 | 6.49% | 4.59% |
| 2026 | 6.09% | 4.33% |
Assumptions & sources
Assumptions
- Penalty = the higher of 3 months' interest or the IRD on a closed fixed mortgage; 3 months' interest on a closed variable one.
- IRD = (your rate − comparison rate) × amount prepaid × years left. Big banks: comparison = posted rate for the time left − your discount (RBC, TD). Not discounted to present value.
- Posted rates are the Bank of Canada's typical big-bank posted rates; your bank's own posted rates decide.
Sources
- Financial Consumer Agency of Canada — Reduce mortgage prepayment penalties (3 months' interest or the IRD; posted-rate method; prepayment privileges; porting) (effective October 15, 2025). Checked .
- Financial Consumer Agency of Canada — Breaking your mortgage contract (fees, cash-back clawback, blend-and-extend) (effective October 15, 2025). Checked .
- RBC Royal Bank — Understanding mortgage prepayment charges (posted rate less your rate reduction; present value). Checked .
- TD — TD explains: what is an IRD? (posted rate for a similar mortgage minus your discount) (effective August 19, 2020). Checked .
- Bank of Canada — Posted conventional mortgage rate, 1-year (series V80691333) (effective October 28, 2026). Checked .
- Bank of Canada — Posted conventional mortgage rate, 3-year (series V80691334) (effective October 28, 2026). Checked .
- Bank of Canada — Posted conventional mortgage rate, 5-year (series V80691335) (effective October 28, 2026). Checked .
- Bank of Canada — Effective rate on new uninsured fixed mortgages, 5 years and over (series V122667786) (effective August 1, 2026). Checked .
- Bank of Canada — Effective rate on new uninsured fixed mortgages, 1 to <3 years (series V122667784) (effective August 1, 2026). Checked .
How this tool works
Pick the month you signed and the tool looks up the typical big-bank posted 5-year rate then (Bank of Canada, monthly since 2015) to estimate your discount, and today's posted rate for the time you have left. The IRD is your rate minus the comparison rate, times the amount you're prepaying, times the years left. Your contract and your lender's payout statement decide; this tells you whether the number you're quoted is in the right range. Then see if breaking still pays on the break, blend or stay calculator.
Frequently asked questions
How is a mortgage penalty calculated in Canada?
Closed fixed: usually the higher of 3 months' interest or the interest rate differential. Closed variable: 3 months' interest. Open mortgages have no penalty.
Why are big-bank mortgage penalties so high?
Banks like RBC and TD calculate the IRD with their posted rate for the time left minus the discount you got off the posted rate when you signed. Because posted rates sit well above the rates people actually pay, that comparison rate is low and the differential is large.
Can I reduce my mortgage penalty?
FCAC suggests using your prepayment privileges first, porting the mortgage if you're moving, or asking about blend-and-extend. Waiting also helps: the IRD shrinks as the time left shrinks.
Primary sources
- Financial Consumer Agency of Canada — Reduce mortgage prepayment penalties (3 months' interest or the IRD; posted-rate method; prepayment privileges; porting) (effective October 15, 2025). Checked .
- Financial Consumer Agency of Canada — Breaking your mortgage contract (fees, cash-back clawback, blend-and-extend) (effective October 15, 2025). Checked .
- RBC Royal Bank — Understanding mortgage prepayment charges (posted rate less your rate reduction; present value). Checked .
- TD — TD explains: what is an IRD? (posted rate for a similar mortgage minus your discount) (effective August 19, 2020). Checked .