Should you break your mortgage early? Calculate the penalty, total refinance costs, monthly savings, and exact break-even point.
e.g. 2 years left = 24 months
Big bank IRD penalties are typically 2–4× higher than monoline lenders due to posted rate calculation method.
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With mortgage rates having risen significantly since 2022, many Canadians locked in at high rates are now wondering whether to break their mortgage early and refinance at a lower rate. The answer depends on your penalty, how much you'll save monthly, and how long you plan to stay in the home.
For fixed-rate mortgages, lenders charge the greater of 3 months interest or the Interest Rate Differential. The IRD compensates the lender for the income they lose when you break the mortgage at a lower rate environment. Big 6 banks use a posted rate formula that inflates the penalty significantly — always get the exact penalty in writing before making any decisions.
Variable rate mortgages only ever charge 3 months interest as a penalty — there is no IRD. This is one of the key advantages of variable rate: you can break it cheaply if rates drop significantly or your circumstances change.
If you're within 6–12 months of your renewal date, it almost never makes sense to pay a penalty — just wait. Similarly, if you plan to sell the home before the break-even point, refinancing costs money. And if the rate difference is less than 0.5%, the math rarely works out in your favour after penalties and fees.
Penalty estimates are approximations. Big bank IRD uses an estimated posted rate premium of 1.65% — your actual penalty may differ. Always request an official penalty quote from your lender before making any decisions. Not financial advice.