What your result means
The headline number is how many months it takes for the money you save each month on a lower rate to repay what it costs to break your current mortgage. If that number is smaller than the months left in your term, switching now is arithmetically ahead of waiting for renewal, before you weigh in anything else that matters to you, like whether you plan to sell, move or pay the mortgage off early anyway. If the number is larger than your remaining term, or shows as "never," a refinance at the rate you entered would not recover its own cost before you would have renewed anyway.
The penalty itself is the biggest lever in this calculation, and it is also the part lenders disagree about. Every closed fixed-rate mortgage in Canada charges the greater of three months' interest or the Interest Rate Differential. Three months' interest is simple: your balance times your rate divided by four. The IRD is not simple, and two lenders looking at an identical mortgage can land on very different numbers, because the IRD depends on which "comparable rate" the lender uses as the other side of the differential.
Worked example
A homeowner in Barrie, Ontario has $400,000 left on a mortgage at a 5.2% contract rate, with 24 months left in a 5-year term and 20 years of amortization remaining. They signed at a discount of 0.8 points off the bank's 6.0% posted rate at the time, which is what gives them their 5.2% contract rate (6.0% - 0.8% = 5.2%; if those three numbers do not agree, this calculator refuses to guess at a posted-rate penalty rather than show one that looks precise but is not real). The bank's posted rate today for a 2-year term is also 5.2%. Three months' interest is $400,000 x 5.2% / 4 = $5,200. The posted-rate IRD compares the 5.2% contract rate against the bank's current posted rate less the original discount (5.2% - 0.8% = 4.4%), a differential of 0.8 percentage points over the 24 months left, or $400,000 x 0.8% x 2 = $6,400. Because $6,400 is greater than $5,200, the posted-rate penalty is $6,400. Add $800 in legal, appraisal and discharge fees and the total cost to break is $7,200. At 4.5% instead of 5.2%, the new payment is roughly $150 a month lower, so it takes about 48 months to recover $7,200, longer than the 24 months left on the term. In this illustrative case, waiting out the term would come out ahead on the numbers alone.
How this is calculated
Posted-rate IRD = (contract rate - (comparison posted rate - your original discount)) x balance x (months left / 12)
Contract-rate IRD = (contract rate - comparison posted rate) x balance x (months left / 12)
Penalty = greater of the three-month figure and the selected IRD (never less than zero)
Break-even months = (penalty + fees) / monthly saving
Mortgage payments here compound semi-annually, not in advance, which is the convention set by the federal Interest Act for Canadian fixed mortgages and is why a Canadian amortization schedule differs slightly from a US or UK one at the same quoted rate.
Your discount is, by definition, the posted rate at signing minus the contract rate you actually received. If the posted rate at signing, the discount and the contract rate you enter do not agree with each other, this calculator will not compute a posted-rate IRD from them: it shows an error explaining which figure looks wrong, rather than a penalty that looks precise but rests on an impossible combination of inputs. Choosing the contract-rate IRD or three-months-only method instead does not require the posted rate at signing to agree, since neither method uses it.
| Method | Who typically uses it | Comparable rate used |
|---|---|---|
| Posted-rate IRD | Most large banks | Current posted rate for the remaining term, less your original discount |
| Contract-rate IRD (discounted-rate IRD) | Many monolines and credit unions | Current posted or discounted rate for the remaining term, no adjustment for your original discount |
| Three months' interest | Applies as a floor to every fixed mortgage, and is typically the only charge on variable-rate mortgages | Not applicable |
What this calculator does not cover
This tool does not know your specific lender's exact wording, rounding convention or which term length it will match your remaining months against, all of which can shift the answer by hundreds of dollars either way. It does not model insured mortgage rules, does not check HELOC or combined loan-to-value limits, and treats variable-rate mortgages as out of scope for the IRD calculation, since they are normally charged three months' interest only. It also does not factor in cash-back clawbacks, blend-and-extend options, or porting your mortgage to a new property, all of which change the real economics of a switch. If you are weighing a refinance against buying a second property outright, see the cottage affordability calculator and the cottage running costs calculator.
Questions
Why do two banks quote different penalties for the same mortgage?
Because the IRD depends on a "comparable rate" that each lender defines itself, using its own posted-rate history and its own rules for matching your remaining term to one of its current terms. Two lenders working from the same balance, rate and remaining term can reasonably produce different comparable rates and therefore different penalties.
Is the penalty ever just three months' interest?
Yes, whenever the IRD calculation comes out lower than three months' interest, or on a variable-rate mortgage, which normally has no IRD at all since there is no fixed rate to differential against.
Does refinancing to add money (cash-out) change this math?
The penalty calculation is the same, but a cash-out refinance in Canada is capped at 80% loan-to-value on an uninsured mortgage, since insured mortgages cannot be refinanced for cash-out under current rules. This tool does not check that cap for you.
Should I ask my lender for their own penalty quote?
Yes. This is an estimate to help you decide whether it is worth asking. Lenders are required to be able to produce their exact penalty on request, and that number is the one that matters when you actually sign.
Does a HELOC have a prepayment penalty like this?
Generally no, since a HELOC is a revolving line rather than a closed term, but it is subject to its own 65% standalone loan-to-value cap, or 80% combined with an amortizing first mortgage on the same property under OSFI's guideline.
Why did the calculator show an error instead of a penalty?
The posted-rate method needs your posted rate at signing, your discount and your contract rate to agree, since the discount is defined as the posted rate at signing minus your contract rate. If the three numbers you entered do not add up, this calculator shows an error rather than compute a penalty from an impossible mortgage. Fix whichever figure is wrong, or switch to the contract-rate IRD or three-months-only method, neither of which needs the posted rate at signing.
Last reviewed 15 September 2026 against OSFI Guideline B-20 and RBC's published prepayment-charge guidance. Next review January 2027.
This calculator gives a general estimate from the figures you enter. It is not financial, tax, legal or mortgage advice. Rules change and personal circumstances matter, so confirm with a qualified professional before you act. See the full disclaimer.