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, 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, which is the larger figure whenever rates have fallen since you signed. In FCAC’s published example the two come to $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. 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 applies, and on a fixed rate 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 at 6%, less interest over 36 months at 4% |
| Charged | $12,000 | The greater of the two |
Two things drive the IRD: the gap between your rate and the comparison rate, and the months 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. Run both calculations on your own mortgage, with a refinance break-even →
Two calculations, and the one you payFCAC’s worked example, dollar results only
- $3,000three months’ interest in FCAC’s example; the usual charge on a variable rate
- $12,000interest rate differential on the same $200,000 with 36 months left; what the fixed-rate contract charges
- 4×the IRD against three months’ interest, on the same mortgage
- $0penalty at renewal: the term has ended, so nothing is being broken
Financial Consumer Agency of Canada’s published example, verified September 17, 2026. The example’s rates are illustrative and are not shown; the comparison rate your own contract names is what sets the size of the IRD.
Go deeper
The detail, if you want it
The comparison rate is the whole argument
The second number in the IRD subtraction comes from your contract, not the market. FCAC describes it 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, rate and months remaining can be quoted penalties thousands apart. Comparing against the lender’s own posted rate, well above what anyone pays, produces a far larger differential.
Which yours does is in the information box of your mortgage agreement. Send the statement and the quote and it gets checked.
What your lender must tell you
With a federally regulated lender, such as a bank or a federal trust company, 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. Many monoline lenders are not federally regulated; in Nova Scotia they are licensed by the Province and must give you a lender’s disclosure statement before you sign. Who regulates which lender →
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. A quote that arrives as a single number with no working attached is one you are entitled to have explained, with the date it expires.
Credit unions are provincially regulated and not bound by the federal code, though most disclose on the same lines. Private and alternative lenders set their own terms, often stricter: a closed private mortgage can carry a fixed three-month penalty with no ability to break 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 saved over the remaining term beats 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. The IRD is small or nil, three months’ interest applies, and leaving is cheap. 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 within a year. Debt consolidation, with the arithmetic → · Run it in the refinance calculator →
- You are late in the term. Few months remaining means a small IRD, and many lenders will blend-and-extend instead, which avoids the penalty entirely.
- You are selling anyway. Ask whether your mortgage is portable before you list. Porting moves it to the new property and avoids the penalty; the window is usually days around closing.
One where it usually does not: breaking a low fixed rate for a slightly lower one. The IRD is designed to recover exactly that difference. Renewals, switches and refinances compared → · What refinancing costs →
How it works
From first call to keys, in four steps
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A 15-minute call
You say what you’re trying to do and roughly what you earn.
Riley tell you the price a lender will support, the cash you need to close, and what to fix first.
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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 letter and a rate held 90 to 120 days.
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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.
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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, one credit check, placed with the lender that reads your file best
- Every part of the province Bedford office, remote process: Yarmouth to Sydney, the same four steps
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. In the Financial Consumer Agency of Canada’s example — $200,000 owing at 6%, 36 months left, a 4% comparison rate — three months’ interest is $3,000, the IRD is $12,000, and 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 The IRD grows with the gap between your rate and the comparison rate and with the months left in the term, so 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 and the new lender usually covers the transfer costs. 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, and nothing is pulled on your credit.
(902) 298-0218 · Monday to Friday, 8:00 am to 10:00 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 and whether breaking early actually pays, in writing, within a business day.
(902) 298-0218 · Monday to Friday, 8:00 am to 10:00 pm Atlantic