Estimate the cost of breaking your mortgage

FCAC explains that a lender may charge a prepayment penalty when you break a mortgage contract, transfer it to another lender before the term ends, repay it in full or exceed the permitted additional payments. Selling the property does not automatically remove the charge. The mortgage agreement and the circumstances of the payout matter.

An open mortgage permits prepayment without a prepayment penalty, while a closed mortgage restricts repayment according to its terms. Even when a prepayment penalty does not apply, there may be discharge, administration or legal expenses. Ask for an itemized estimate so you do not mistake one fee for the complete cost of leaving.

Start this review before signing a sale agreement or accepting a refinance proposal. A closing date can affect the payout balance and the penalty calculation. Having an early estimate gives you time to investigate alternatives, while a later written payout statement confirms the amount needed for the actual transaction.

A three-month-interest calculation estimates interest on the applicable mortgage balance for a three-month period, using the rate and method specified by the agreement. It is not normally three full mortgage payments. Your regular payment may include principal, and it may also include property tax collected on your behalf.

An interest rate differential, or IRD, compares the interest associated with your existing mortgage against a comparison calculation for the remaining term. The comparison rate, treatment of discounts and method of matching the remaining term can materially affect the result. That is why a simple comparison of advertised offers may not reproduce your lender’s charge.

FCAC describes three months’ interest and IRD as common approaches to mortgage prepayment penalties. Your contract determines which applies, whether a comparison is required and what exceptions exist. Do not assume every fixed mortgage or every variable mortgage follows an identical rule. Read the prepayment section and ask the lender to explain it in writing.

Have your current balance, interest type, contract rate, maturity date and intended payout date ready. If the calculator asks about an original discount or a comparison rate, use the lender’s documented information rather than guessing. Your annual statement may not contain everything needed, so you may need the original agreement and a current lender quote.

Use the IRD calculator linked in the tools section below to explore an estimate. Keeping the calculation in one place avoids conflicting results from duplicate tools. If an input is unclear or your mortgage has unusual features, stop and request clarification rather than choosing a value simply to produce an answer.

Record the date of your estimate and save the inputs. A later balance, different payout date or updated comparison information can change the result. For a sale or refinance, your lawyer and the receiving lender will need the current payout instructions, not a screenshot of an earlier planning calculation.

Ask whether a permitted lump-sum payment could reduce the balance used in the penalty calculation. Prepayment privileges have timing rules and limits, and unused privileges may not carry forward. Confirm the sequence with the lender before moving money: an action taken too late, or in the wrong form, may not have the effect you expect.

If you are buying another property, investigate porting. A portable mortgage can still require a new approval, an acceptable property and closely coordinated dates. Increasing or reducing the mortgage amount can change the result. Ask whether a charge is collected first and refunded later, and what conditions must be satisfied.

Finally, compare the complete cost of leaving with waiting until maturity. Include any incentive repayment and transaction expenses that apply. A lower proposed payment alone is not enough to establish savings, especially if the new mortgage extends repayment. Use the refinance break-even calculator for an initial cost-versus-payment comparison, then review the remaining balances and contract terms.