How much will it cost to break your mortgage term?

Breaking your mortgage usually incurs a penalty, but in some cases, it may be worth it.

Your penalty amount will depend on whether you have a fixed or variable-rate mortgage. Here's how it works and when it can make financial sense.

Dec 29, 2025

Updated from Dec. 1, 2025

Quick Takeaways:

Lenders usually charge a break penalty to cover their costs.
Fixed-rate IRD penalties are often higher than variable-rate penalties.
Posted-rate calculations can significantly increase the penalty charged.
The savings math for breaking depends on your rate, balance, and remaining term.
An expert True North broker can help you determine whether you can save with a break.

Time to make a break?

If you want to break your mortgage term to change your rate or options partway through your term, lenders usually charge a pre-payment penalty to cover their costs.

Why would you want to break your mortgage?

To switch from a higher rate to a lower rate to save.
To switch from a variable to a fixed rate if you're nervous about rate changes.
To get a more flexible product, such as better pre-payment privileges to help pay off your mortgage faster.
You need to move (ask about porting your mortgage).
You want to refinance to adjust your amortization or access home equity funds.

What penalty will you pay to break?

The penalty you'll pay depends primarily on whether your mortgage is fixed-rate or variable-rate.

Breaking a fixed-rate term can incur an IRD (Interest Rate Differential) penalty or a 3-month interest penalty — though the IRD is typically the one lenders end up using. Fixed rates have different management costs for lenders compared to variable rates, which is why the IRD penalty exists.

Breaking a variable-rate term only incurs a 3-month interest penalty. There's usually no IRD penalty for this rate type.

(There may be additional fees for the break, depending on the lender.)

A fixed-rate mortgage usually carries a (higher) IRD penalty.

Your lender will use the greater of two calculations for your penalty — the IRD (Interest Rate Differential) or 3 months' interest. The IRD is usually higher and is therefore applied most often.

How an IRD is typically calculated (can vary by lender):

For what's left in your term, the total interest using your original rate (the lender will choose either the original-contract or original-posted rate) is subtracted from the total interest at the lender's 'today rate' (current contract or posted rate, depending on the lender).
Here's a simplified way to estimate lender IRD penalties:
- Subtract your original (contract or posted) rate from the bank's current rate, multiply by the years remaining on your term, then multiply by your mortgage size, and divide by 100.

Please note that lenders' IRD calculations may vary, and they're not obligated to disclose their formulas or the rates they use.

A variable-rate mortgage usually carries a (lower) 3-month interest penalty.

A variable-rate mortgage only uses the 3-month interest calculation and is much simpler to figure out:

Take the amount of interest you pay in a month (not including principal) and multiply it by 3. That's the penalty you'll pay to break your mortgage and switch to another lender.

However, if you decide to convert from a variable rate to a fixed rate with your current lender, that change is usually made for you, penalty-free (check with your lender).

Why is an IRD penalty sometimes more costly at a big bank?

If your mortgage is with a Big Bank, your contract rate was likely a discount off its original 'posted rate.' The bank will use its higher posted rate rather than market rates when calculating the IRD penalty, which can add hundreds or thousands to the charge, depending on your mortgage details.

Non-bank lenders, such as True North's in-house, CMHC-approved THINK Financial, typically use market rates to calculate IRD penalties, resulting in lower charges than Big Banks.

When does breaking your mortgage actually save money?

The cost of breaking your mortgage — and whether a lower rate is worth it — depends on a few key details, and can come down to whether the interest you save exceeds the penalty you pay.

The original rate used (big banks may use a higher posted rate instead of your contract rate, which can make the penalty more costly).
The rate spread between the current higher rate and the desired lower rate.
Your mortgage balance at the time of the request.
The time remaining in your term.

The most important thing to know? It's always the right time to ask your expert broker about your mortgage details to stay on top of your homeowning goals.

Let's take a look at these client examples.*

With mortgage rates recently declining, Tom, Alex, Taylor, and Nancy came to True North Mortgage for unbiased advice about whether breaking their term for a lower rate made financial sense (to save more). All the clients listed below have their current mortgages with a big bank.

Tom: With my $286K mortgage, is it worthwhile to break my 6.34% fixed rate?

Tom got a mortgage for a rental property 2 years ago at a 5-year fixed rate of 6.34% and was looking to save by breaking for a lower rate. He consulted with his bank but wasn't thrilled with its options. He spoke with a True North expert broker, who offered to switch to a new mortgage with a different lender at a lower fixed rate of 4.49% for the remainder of his term.

In Tom's case, here are the break numbers:

With a contract rate of 6.34%, his bank would charge an IRD penalty of $7,518 to break his term (other admin or legal fees may apply).
The penalty would be added to the mortgage balance to avoid out-of-pocket payment.
At his new rate of 4.49%%, he would save about:
- $277 per month with a lower mortgage payment
- Over the remaining 3 years, $14,800 on interest
- Over and above the penalty, $7,375 total savings

Why didn't Tom have to pay the entire $5,250 penalty out of pocket?

Most lenders will allow up to a $3,000 addition to an insured mortgage balance. Adding a larger penalty would require a refinance and would then be considered an uninsured mortgage. In Tom's case, his mortgage was already a conventional mortgage (uninsured).

In this case, Tom decided it was worthwhile to make a switch at this time. His expert True North broker helped him through a seamless and stress-free process that saved him thousands.

Alex: With my $500K mortgage, is it worthwhile to break my 5.75% fixed-rate?

Alex has a larger mortgage than Tom — a $500K mortgage taken out 2 years ago, with 3 years left on their current term. Already a True North client, they called their broker to ask whether switching to a lower fixed rate of 3.89% made savings sense.

Here are Alex's break numbers:

With a contract rate of 5.75%, their bank would use the current rate of 4.0% to calculate the interest for the remaining 3 years.
Alex's IRD penalty would be $26,250 (other admin or legal fees may apply).
At the new rate of 3.89%, they would save $692 by term's end after accounting for the penalty.

Alex couldn't afford to pay the extra $23,250 out of pocket (after $3,000 is absorbed into the mortgage loan), nor did they want to add it to the mortgage balance through a refinance. They decided to wait out the term and get their best rate through us at renewal time with no penalty charged.

Taylor: Should I switch my 5.99% fixed rate to a lower variable rate?

Taylor inquired with True North about switching from a big bank to THINK Financial's lower variable rate with only 2 years remaining in their fixed-rate mortgage term:

With a balance of $480K and a 5-year fixed rate of 5.99%, they wanted to switch to a variable rate, which was 4.45% at that time (prime - 1.0%).
Penalty for breaking was $7,000.
Switching to the lower variable rate would save about $13,500 beyond the penalty for the remaining two years.
Their variable rate has dropped since then to 3.45% (saving them even more).

That initial $13,500 in savings was primarily due to a narrower rate spread and a slightly smaller mortgage, even though the original contract rate was higher. Plus, Taylor switched to a variable rate during a period of declining prime rates, which helped them save more over their term.

Nancy: Should I switch my variable rate of 4.20% to a lower fixed rate?

Nancy has a $500K mortgage with 3 years remaining on her 5-year variable-rate term and was looking to switch to a lower fixed-rate offer of 3.89% at a different lender.

Here are the numbers for Nancy to break and switch:

At her current variable-rate term of 4.20% (prime -0.25%), to break her term and switch lenders, the 3-month interest charge would be $5,205.
The lower fixed rate of 3.89% (remaining term of 3 years) would mean the break would cost her $727, with the rate savings not offsetting the penalty cost in that time frame.

Nancy could also convert to a fixed rate with her current lender, penalty-free. However, the fixed rate offered to her was higher than her current variable rate, so she decided to keep her variable rate mortgage.

When is a break a refinance?

Breaking your mortgage term to change your rate is not considered a refinance, whether you stay with your lender or switch. But if you're adding a larger penalty amount to your mortgage balance, changing your mortgage product or amortization schedule, or accessing home equity funds, it's considered a refinance.

You can avoid the penalty of a mid-term break or refinance by waiting until your renewal period to make the change. If you're refinancing with your current lender, they may offer options that reduce or waive certain costs, depending on the details.

You may not have a choice but to break your mortgage.

Needing to move, sell, or access home equity funds during your term can happen in the ordinary course. Your broker can help you navigate the details and find your best rate and options for your situation.

Mortgages can be complicated, but we know how to iron out all the details quickly and efficiently. Check out our 5-star reviews to see how we've helped other clients save money, time, and stress.

Want to pay out your mortgage entirely?

You'll pay the penalty for your rate type, plus a discharge fee and other admin fees (depending on the lender).

Get the right advice (and rate) to save the most.

Even if you see a better rate (we can often get your best rate for which you qualify), it may not always make financial sense to switch before your term is up.

Whether you want to break or need a better choice at renewal time, or are looking to renew early, a friendly True North broker can shop your options and offer exceptional service and volume rate discounts to help you find the solution that's right for you.

Want a helpful mortgage renewal reminder? Set it up here.

Anywhere you are in Canada, our highly trained brokers are salaried and non-commissioned for truly unbiased advice. We can help you online, over the phone, at a store — or a mobile broker can come to you.

*Examples are for illustration purposes only. Please get in touch with your expert True North Mortgage broker for your exact numbers.

Can you avoid a mortgage break penalty?

In most cases, no. Breaking your mortgage early usually incurs a prepayment penalty.

However, some lenders may allow penalty-free changes depending on your situation, or close your renewal window. Certain mortgage features, such as porting, may help reduce or avoid pre-payment costs depending on your situation.

Do mortgage break penalties differ by lender?

Yes. Penalty calculations vary by lender and mortgage type. Some lenders, such as Big Six banks, use posted rates when calculating IRD penalties, which can significantly increase the cost of breaking a fixed-rate mortgage.

By comparison, True North Mortgage's in-house lender, THINK Financial (a Mortgage Finance Corporation), uses market rates rather than posted rates when calculating IRD penalties, which can lead to lower penalty costs than those often charged by big banks.

Is it cheaper to break a variable or fixed-rate mortgage?

Variable-rate mortgages usually have lower break penalties, typically equal to three months’ interest. Fixed-rate mortgages often carry higher penalties due to IRD calculations.

Can a mortgage break penalty be added to the mortgage?

Sometimes the pre-payment penalty can be added to the mortgage balance, depending on the lender and mortgage product. Smaller penalty amounts may be added if the mortgage is insured, whereas larger penalties often require refinancing.