Estimate the three months' interest charge for breaking or paying out a mortgage term early, plus any discharge or administration fee.
Breaking a closed mortgage before the end of its term usually costs a prepayment charge. For most variable-rate mortgages it is three months' interest. For most fixed-rate mortgages it is the greater of three months' interest and an interest rate differential (IRD), so this tool gives the minimum you should expect on a fixed term, not the full figure.
How to use it. Enter the balance you would pay out. In the percent box, enter your contract interest rate divided by 4, because three months is a quarter of a year: a 3.89% rate becomes 0.9725. Add any discharge or administration fee your lender lists in its fee schedule or mortgage disclosure.
Formula. Three months' interest = balance x annual rate x 3 / 12. Some lenders calculate it on the balance on the date of payout and some on the rate in force for a variable mortgage on that date, which is why the figure from your lender can differ slightly.
Worked example (illustrative). On $350,000 at 3.89%: $350,000 x 0.9725% = $3,403.75, plus a $300 discharge fee gives $3,703.75. If the lender's IRD on the same mortgage is $3,937.50, you pay the IRD instead.
Limits. The tool does not calculate an IRD, which depends on your lender's comparison rate method, and it ignores any cash-back you may have to repay. Always ask your lender for a written penalty quote dated for your payout date. Defaults are illustrative.
Worked Renewal Numbers and Checklists
How Canadian lenders calculate the penalty for breaking a mortgage term early, with worked three-month interest and IRD examples, the posted-rate method and when breaking pays.
