Lunenburg, South Shore
What it actually costs to break your mortgage
The penalty on a fixed-rate mortgage is almost never three months' interest. Here is the calculation, in full, with the arithmetic shown.
How much does it cost to break a mortgage?
On a variable-rate mortgage, usually three months' interest. On a closed fixed-rate mortgage, usually the greater of that and the interest rate differential — and the IRD is the larger of the two whenever rates have fallen since you signed. In FCAC's published example the two figures are $3,000 and $12,000: a 4-fold difference on the same mortgage.
The two calculations, and which one you pay
Every closed mortgage contract contains both calculations. Three months' interest is simple arithmetic on the balance. The interest rate differential is the interest rate differential: the lender works out the interest left to pay on the remaining term at your rate, works it out again at a comparison rate, and charges the difference. Your contract says which one applies — and on a fixed-rate mortgage it almost always says the greater of the two.
This is FCAC's own worked example, reproduced exactly so you can check it against the source.
| Calculation | Amount | How it is reached |
|---|---|---|
| Three months' interest | $3,000 | 6% on $200,000, for three months |
| Interest rate differential | $12,000 | Interest left to pay at 6%, less interest over the same 36 months at 4% |
| Charged | $12,000 | The contract charges the greater of the two |
Two things drive the IRD: the gap between your rate and the comparison rate, and how many months are left. Both shrink as the term runs down, so the same decision can cost $12,000 today and a fraction of that a year from now. That is worth working out before you commit either way.
Go deeper
The detail, if you want it
The comparison rate is the whole argument
The IRD is a subtraction, and the second number in it is set by your contract, not by the market. FCAC describes the comparison rate as either the posted rate for a term of similar length, or that posted rate less the discount you were originally given — which one a lender uses is set out in the mortgage contract, and the two produce very different numbers
That clause is why two borrowers with the same balance, the same rate and the same months remaining can be quoted penalties that differ by thousands. A lender that compares against its own posted rate — typically well above what anyone actually pays — produces a much larger differential than one that compares against the posted rate less your original discount.
You do not have to guess which yours does. It is in the information box in your mortgage agreement, and the lender has to explain it. Send the statement and the quote and it gets checked.
What your lender must tell you
If your mortgage is with a federally regulated lender — a bank, or most monoline lenders — the rules are specific. A federally regulated lender must set out prepayment privileges and charges in a single prominently displayed information box in the mortgage agreement, describe the elements used to calculate a charge, and — on the annual statement — explain the calculation with examples.
And when you confirm repayment the lender must give you the applicable prepayment charge, a description of how it was calculated, and the period for which the figure is valid. If a quote arrives as a single number with no calculation attached, you are entitled to ask for the working, and the date it expires.
Credit unions are provincially regulated and are not bound by the federal code, though most disclose on the same lines. Private and alternative lenders set their own terms, and those terms are often stricter — a closed private mortgage can carry a fixed penalty of three months' interest with no ability to break at all before a set date. How private and B-lender mortgages work →
When breaking early is actually worth it
The penalty is not the question. The question is whether the money you save over the remaining term is larger than the penalty plus the costs of moving — administration fees, appraisal fees, reinvestment fees and a mortgage discharge fee.
Four situations where the arithmetic often works:
- Rates have risen since you signed. Then the IRD is small or nil, three months' interest applies, and leaving is cheap. Counter-intuitively, the worse today's rates look, the cheaper it is to break.
- You are consolidating high-rate debt. Moving debt at 8% to 29% onto a mortgage rate can outrun a penalty in a year. Debt consolidation, with the arithmetic →
- You are late in the term. Few months remaining means a small IRD. Many lenders will also blend-and-extend instead, which avoids the penalty entirely.
- You are selling anyway. Ask whether your mortgage is portable before you list. Porting moves the mortgage to the new property and avoids the penalty; the window to port is usually short and is measured in days around closing.
And one where it usually does not: breaking a low fixed rate simply to get a slightly lower one. The IRD is designed to recover exactly that difference, which is the point of it.
Renewals, switches and refinances compared → · What refinancing costs →
How it works
From first call to keys, in four steps
-
A 15-minute call
You say what you’re trying to do and roughly what you earn.
Riley tell you what a lender will support, and what to fix first.
-
Documents and pre-approval
You send the short list through a secure upload link.
Riley package the file and come back with a pre-approval and a rate hold.
-
Lenders, side by side
You read the comparison and pick.
Riley place one application with banks, credit unions and monolines, and show you every answer.
-
Approval, lawyer, keys
You sign with your own local lawyer.
Riley hold the lender, appraiser and lawyer to the closing date.
Why a broker
Licensed, independent, paid by the lender
- Licensed in Nova Scotia Associate broker 3001134, verifiable on the provincial register
- $0 broker fee On a standard residential mortgage the lender pays, not you
- Banks, credit unions, monolines One application, placed with the lender that reads your file best
- Every part of the province Bedford office, remote process — Yarmouth to Sydney, the same way
Questions people ask
How much does it cost to break a mortgage in Canada?
On a variable-rate mortgage, usually an amount equal to three months’ interest on what you still owe. On a closed fixed-rate mortgage, usually the greater of that and the interest rate differential, which can be several times larger. In the Financial Consumer Agency of Canada's published example — $200,000 owing at 6% with 36 months left and a 4% comparison rate — three months' interest is $3,000 and the IRD is $12,000. The lender charges $12,000.
What is the interest rate differential?
It is the interest rate differential: the lender works out the interest left to pay on the remaining term at your rate, works it out again at a comparison rate, and charges the difference. The comparison rate is either the posted rate for a term of similar length, or that posted rate less the discount you were originally given — which one a lender uses is set out in the mortgage contract, and the two produce very different numbers Two lenders with identical rates can quote penalties that differ by thousands because of that one clause.
Why is my penalty so much bigger than three months of interest?
Because your contract almost certainly says the lender charges the greater of the two calculations, and the IRD is larger whenever rates have fallen since you signed. The bigger the gap between your rate and today's comparison rate, and the more months left in the term, the bigger the IRD. It shrinks as the term runs down, which is why the date you break matters.
Does the penalty apply if I am just renewing or switching lenders?
No. A penalty is charged for ending a term early. At renewal the term has ended, so moving to another lender costs nothing in penalty — the new lender usually covers the transfer costs too. Since November 21, 2024 a straight switch between federally regulated lenders is also exempt from the stress test, provided the balance and amortization do not increase.
What else does breaking a mortgage cost beyond the penalty?
Administration fees, appraisal fees, reinvestment fees and a mortgage discharge fee. Discharge and legal costs are the ones people forget. If you are refinancing rather than simply leaving, the new mortgage also has to fit within 80% of the home's value.
Still unsure? Ask me directly.
If your question isn't here, your situation is probably specific. Fifteen minutes on the phone beats reading another page.
(902) 298-0218 · Monday to Friday, 9:00 am to 5:00 pm Atlantic
Sent. Thank you.
Your details went straight to Riley. He replies within one business day, usually sooner, by phone or email.
Need it faster? Call (902) 298-0218, Monday to Friday, 9:00 am to 5:00 pm Atlantic.
Get the real number before you decide
Send your mortgage statement and the penalty quote your lender gave you. You get back the calculation checked against your contract, what the same money looks like over the remaining term, and whether breaking early actually pays — in writing, within a business day.