Breaking a mortgage before the end of its term usually costs a prepayment penalty. The Financial Consumer Agency of Canada explains that these penalties can cost thousands of dollars, so check the exact figure before you decide.
Variable-rate mortgages
A variable-rate penalty is usually three months’ interest on the balance.
Fixed-rate mortgages
A fixed-rate penalty is often the greater of three months’ interest and the interest rate differential. The differential is the gap between your contract rate and the rate your lender would charge today for the time left on your term, applied to the balance for that time.
Why the lender’s figure can differ
Each lender calculates the differential differently. Some use the posted rate rather than the discount you received, which can make the penalty much larger. The calculator gives an estimate only.
Ways to reduce the cost
- Use your annual prepayment privilege first, so the penalty applies to a smaller balance.
- Ask whether your mortgage can be ported to a new property.
- Wait until the end of the term if the penalty would be large.
Ask for the penalty in writing
Before you sell or refinance, ask your lender for the exact amount in writing, with the method it used.
Try the mortgage penalty estimator →
Official source
FCAC · Mortgage fees: prepayment penalties
This guide explains general rules. Confirm your figures with your lender, lawyer, or the official source before you act.