07/05/2026
Why breaking a fixed mortgage costs so much?
If you have to end a fixed-rate mortgage early, Canadian banks will charge you whichever penalty is greater: three months of interest, or a calculation called the Interest Rate Differential (IRD).
When that IRD formula triggers, here is how the math works in plain English:
The “Discount”: When you first signed, the bank gave you a discount off their high retail rate (the “posted rate”).
The Catch: When you want to leave early, the bank takes today’s retail rate and subtracts that old discount. This creates a much lower fallback rate.
The Big Bill: Because that fallback rate is dragged down, the gap between your interest rate and the bank’s rate opens wide. The bank multiplies this gap by the money you still owe and the months left in your term.
This is exactly why two people with the same mortgage balance can get completely different bills from the same bank.
⚠️ What you need to do: Always check your mortgage commitment letter before you sign the final paperwork. Pay close attention to their official posted rate and review exactly how your lender calculates these penalties so you know your true financial exposure.
Comment PENALTY below and I will send my mortgage penalty calculator so that you can run the numbers.
