Mortgage penalty calculator

FCAC’s framing, verbatim: “The prepayment penalty will usually be the higher of: an amount equal to 3 months’ interest on what you still owe [or] the interest rate differential (IRD).” Variable-rate closed mortgages typically charge just the three months’ interest; fixed-rate closed mortgages charge whichever is larger — and when your rate is above current rates with years left on the term, the IRD usually is. FCAC’s own worked example: $3,000 of three-months-interest vs a $12,000 IRD — you pay the $12,000.

Because of which rates get compared. The big banks generally don’t compare your rate to today’s market rate — they compare it to today’s posted rate for your remaining term, minus the discount you originally negotiated. Posted rates run well above real pricing (6.09% posted vs ~4.85% specials at our last verification), so subtracting your old discount manufactures a wide spread and a large penalty. Monoline lenders typically use actual rates, which is why their penalties on the same mortgage can be a fraction of a bank’s — a difference worth more than a few basis points of rate when choosing a lender.

When what you gain exceeds the penalty plus costs — three honest cases. Refinancing to a much lower rate: compare interest saved over the remaining term against the penalty (and remember a blend-and-extend may capture some benefit penalty-free). Selling without buying: the penalty is simply a moving cost to budget. Porting instead of breaking: most fixed mortgages can move to a new home, dodging the penalty entirely — ask before triggering anything. The number this calculator produces is the threshold the math has to clear.

It implements the standard structures — three months’ interest, and the posted-minus-discount IRD method the big banks describe — but every lender’s contract defines its own formula, including which comparison rate and term-rounding it uses. Treat this as a close estimate for planning and negotiation, then get the binding number the only place it exists: a written payout statement from your lender (they must provide it). Federally regulated lenders also publish penalty calculators of their own — compare theirs to your statement too; discrepancies happen.

Sometimes substantially. Using your annual prepayment privilege first (10–20% of original principal at the big banks) reduces the balance the penalty is computed on — sequence matters, and lenders won’t volunteer it. Timing matters too: penalties shrink as the term runs down, so breaking eight months before renewal may cost a fraction of breaking at month 18. And if the goal is a better rate at the same bank, ask about blend-and-extend — a penalty-free middle path whose pricing deserves its own scrutiny.