Breaking a mortgage

What the prepayment penalty likely is, why the same mortgage can cost twice as much to leave at a big bank as at a fair-method lender — and whether breaking for today's rates is worth it at all.

✓ Verified math — the arithmetic on this page is proven against independent reference calculations; the proof is printed near the bottom.

Rate type

Current balance

Contract rate

Time left in the term2 yr 2 mo

How the lender calculates IRD

Big banks (RBC, TD, BMO, CIBC, Scotia, NBC) compare against today's posted rate minus the discount originally negotiated. Monolines and most credit unions compare against the rate they'd actually charge today.

Posted rate when the mortgage was signed

Bank's posted rate today (2-yr term)

More than 5 years into this term (7- or 10-year fixed). The federal Interest Act bars IRD after year 5 for individual borrowers — the penalty is capped at 3 months' interest, whatever the bank's calculator says.

Rate available today (to test a switch)

Discharge & other fees

Estimated prepayment penalty

3 months' interest

IRD

Big-bank posted method$0

Monoline fair method$0

Interest saved by switching

Penalty + fees

Net result

Fine print that moves penalties

Past year 5 of the term? The Interest Act caps the penalty at 3 months' interest for individuals — banks' calculators rarely mention it.
"Low-rate" / no-frills products often carry bona-fide-sale-only clauses — the client may be unable to refinance without selling, or face ~3%-of-balance penalties.
Cash-back mortgages: breaking early usually claws back some or all of the cash.
Readvanceable combos: the line-of-credit portion is open — only the amortizing portion is penalized.
Shrink it first: using the annual prepayment privilege immediately before breaking reduces the balance the penalty is computed on.

The payout statement is the only binding number — this desk reads it with the client, prices the switch, and structures the exit or the blend. Quietly, and in coordination with you.

Arrange a confidential introduction

Ramin Hallaji, Principal — licensed in British Columbia (BCFSA) and Alberta, Dominion Lending Centres Group · 778-879-6768 · ramin@privatewealthfinancing.ca

Illustration only — not an offer of financing and not financial advice. IRD conventions vary by lender and the lender's payout statement always governs; rate fields are editable defaults, not live quotes. Interest-saved figures use simple interest on the current balance, which slightly overstates the benefit on an amortizing mortgage. The Interest Act cap applies to individual borrowers; corporations are exempt. Private Wealth Financing arranges mortgage financing only.