What does it cost to break a mortgage in Ontario?

On a variable mortgage the penalty is typically around three months' interest, which is usually manageable. On a fixed mortgage it is the interest rate differential, or IRD, which can be a very large number and is the most common unpleasant surprise in a refinance. Your lender will confirm the exact payout figure on request.

How can I reduce a mortgage prepayment penalty?

Wait for renewal, when there is no penalty at all. Use your annual prepayment privilege first to reduce the balance the penalty is calculated on. Port the mortgage to a new property if you are moving. Or avoid breaking altogether by adding a second mortgage behind the existing first, which carries no penalty.

Are online mortgage penalty calculators accurate?

They are a rough guide only. On a fixed mortgage they can be out by a wide margin, and rarely in the borrower's favour. Ask your lender for a written payout statement valid to a specific date, and confirm any discharge or administration fees and whether cash back received at the start must be repaid.

Answers › Refinancing & Home Equity

What does it cost to break my mortgage?

Answered by Rajiv Verma, Mortgage Broker · Reviewed 18 August 2026 · About a 4 minute read

The direct answer

It depends on which kind of mortgage you have. On a variable mortgage the penalty is typically around three months’ interest — usually manageable. On a fixed mortgage it is the interest rate differential (IRD), which can be a very large number and is the single most common unpleasant surprise in a refinance. Get the exact figure from your lender before you decide anything. It is the number the whole decision turns on.

THE SHORT VERSION

Variable: roughly three months’ interest
Fixed: the interest rate differential, and it can be large
Your lender will tell you the exact payout figure on request — ask for it in writing
Do not plan around an estimate. People get caught out here more than anywhere else.
A second mortgage avoids the penalty entirely, because nothing is broken

Why the two are so different

Three months’ interest is a simple calculation. It is what it sounds like, and on most balances it lands somewhere people can absorb.

The interest rate differential is not simple, and it is not small. Broadly, it compares the rate you agreed against what the lender could charge today for the time you have left, and asks you to make up the difference. The bigger the gap between your rate and current rates, and the longer you have left, the larger it gets.

This is why so many people are better off not breaking right now. A lot of homeowners are holding rates they could not get today — which is exactly the situation that makes an IRD penalty largest. The mortgage you are protecting and the penalty you would pay are the same fact seen from two directions.

How to get the real number

Call your lender and ask for a payout statement. It is a routine request. Ask for it in writing, and ask for the figure to be valid to a specific date.

Ask them to confirm:

The penalty amount
Any discharge or administration fee on top
Whether any cash back received at the start has to be repaid
Whether the figure changes if you close in a different month

Online penalty calculators are a rough guide only. On a fixed mortgage they can be out by a wide margin, and the direction is rarely in your favour.

Ways the penalty can shrink or disappear

Wait for renewal. At maturity there is no penalty at all. If you are within a few months, waiting is often the cheapest decision available.

Use your prepayment privilege first. Most mortgages allow a lump sum each year without penalty. Paying that down before breaking reduces the balance the penalty is calculated on.

Port it. If you are moving, some mortgages can be carried to the new property instead of broken.

Do not break it at all. If the reason you want to break is to access equity, a second mortgage leaves the first untouched — no break, no penalty, existing rate preserved.

When breaking is still the right call

When your current rate is at or above today’s market. There is nothing to protect, and the penalty is likely small.

When the savings genuinely exceed the penalty over the remaining term. Run it in dollars, over the same period, not as a rate comparison.

When you need a structure the current mortgage cannot give you. Sometimes the arrangement itself is the problem.

When it is the wrong call

When you are close to renewal. Months of patience can be worth thousands.

When the IRD swallows the benefit. This is the common case right now, and it is why the number has to come first.

When you only need part of what a refinance would give you. Restructuring an entire mortgage to solve a smaller problem is expensive.

What to check

Whether your mortgage is fixed or variable
The exact payout penalty, in writing, from your lender
Any discharge or administration fees
Whether cash back has to be repaid
How long until renewal
Whether a second mortgage would do the job without breaking anything

What to do next

Get the payout figure from your lender first — nothing sensible can be decided without it.

Then send it to me with your balance, rate and renewal date. I will show you in dollars whether breaking, waiting, or leaving it alone and adding behind it is actually cheapest.

Talk it through →

Related questions

Answered by Rajiv Verma, Mortgage Broker · Mortgage Architects — FSRA Brokerage Licence #12728 · Licensed in Ontario · Office 289.505.0631 · Direct 647.291.7116

General information about Ontario mortgages — not financial, legal or mortgage advice. Penalties are set by your existing lender and by the terms of your own mortgage. Only your lender can confirm your payout figure. Every file is reviewed individually.