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Mortgage penalty calculator – MoneySense

If you have a closed mortgage and decide to break your mortgage contract before the agreed-upon term has expired, you’ll likely have to pay a prepayment penalty fee. A mortgage penalty calculator can help you figure out exactly how much those fees will be and will make it easier to know whether it’s worth it to break your current mortgage contract early.

What is a mortgage penalty? 

When you successfully apply for a mortgage, you and your lender agree to a term—the length of time your contract is in effect, which can range from a few months to five years or more. If you need to break your mortgage contract before the term is up, your lender will usually charge a penalty fee. The fee is commonly known as a mortgage prepayment penalty. You may be charged a prepayment penalty if: 

  • You make a larger additional payment towards your mortgage than your contract allows
  • You decide to go with another mortgage provider before your mortgage term expires
  • You pay back your entire mortgage amount before your term ends (including through the sale of your home) 
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What do mortgage penalties cost? 

The mortgage penalty calculator estimates how much it may cost you to break your mortgage early. There are a variety of factors that determine how much of a penalty you’ll have to pay to end your mortgage contract before the term ends, including:

  • Your current mortgage provider and your province or territory of residence
  • When your current mortgage started and the original term of the agreement
  • The type of rate (fixed or variable)
  • Your existing mortgage interest rate
  • The balance remaining on your current mortgage

Enter the information above into the mortgage penalty calculator to get an idea of what you might pay in penalties. Note that the amounts are estimates based on the lender, mortgage terms and other relevant details. 

One of the key factors determining how much you’ll pay in penalties is whether your mortgage has a variable or fixed rate. If you have a variable-rate mortgage, you will most likely pay three months’ interest on your mortgage balance. If you have a fixed-rate mortgage, the penalty can be calculated two different ways, and you are likely to pay the higher of the two: either three months’ interest on your mortgage balance, or what’s known as the interest rate differential (IRD)—a penalty based on the difference between your current mortgage rate and the rate the lender would use if lending the funds today. 

When is it worth paying the penalty? 

Whatever number the mortgage penalty calculator gives you, keep in mind that in some cases, it may be favourable to break a mortgage contract. With the record low rates Canada experienced during the peak of the pandemic, you could have saved thousands of dollars even after factoring in the penalty fee. 

The important thing is to calculate how much you’ll have to pay in penalty charges and compare it to what you could save over the course of your mortgage. Doing the math is the best way to ensure you make an informed and financially smart decision regarding whether or not to break your mortgage contract.

Mortgage Penalty Calculator Notes

In using the above calculator, know that mortgage rates are based on the criteria you provide. It is possible a lender will offer a different rate than shown here when you actually apply for a mortgage. Rates can also vary based on an applicant’s credit history. Additional terms and conditions can apply. A true mortgage will have specific qualification criteria, including debt servicing ratios, credit, property value, and other details. Results shown here only serve as examples, and do not take into consideration homeowners insurance or property taxes. The shown default rates are based on the following assumptions: an excellent credit history, the purchase of a single family home (under CAD$1,000,000) for personal occupancy, and a down payment of 20%.

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About Sandra MacGregor

About Sandra MacGregor

Sandra MacGregor has been writing about personal finance, mortgages, investing and credit cards for over a decade.


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