Refinance Break-Even Calculator
Breaking a Canadian mortgage mid-term costs a penalty, three months' interest, or a much bigger Interest Rate Differential on a fixed rate. Both penalties are priced on your balance, next to your monthly savings, the month you break even, and whether waiting for renewal would cost you less.
Rates & rules verified · July 2026Primary sources: FCAC – Mortgage prepayment penalties · OSFI – Guideline B-20 (mortgage underwriting)
When you break even
Breaking now against keeping your mortgage, month by month: payments saved minus the switching cost and any extra debt on the new loan. Where the line crosses zero is your break-even.
Break now or wait for renewal?
What breaking today is worth at your renewal date, against waiting and switching then at the same new rate, for nearby new rates (columns) and months left in your term (rows).
How your penalty is set
A fixed-rate lender charges the larger of three months' interest and the Interest Rate Differential (IRD). A lender that compares against its posted rate can charge far more.
Year-by-year comparison
Payments saved so far, your net position after all costs, and what you would owe on each mortgage, year by year over your current remaining amortization. Net position = payments saved − costs paid in cash − (new balance − balance if you keep).
| Year | Payments saved | Net position | New balance | Balance if you keep |
|---|
How this is calculated
The penalty (the number that makes or breaks the deal)
Every Canadian closed mortgage charges a penalty to break it before the term ends. For a variable rate it is three months' interest: penalty = balance × rate ÷ 4. For a fixed rate it is the greater of three months' interest or the Interest Rate Differential:
IRD = balance × max(0, contractRate − comparisonRate) × (monthsLeft ÷ 12)
and the penalty charged is max(3-month interest, IRD). The IRD roughly recovers the interest the lender loses by re-lending your money at today's lower rate for the time left in your term (never counted past your remaining amortization). With 0 months left you are at maturity: nothing is being prepaid early, so there is no penalty and switching costs only the fees. For a fixed rate before renewal, the penalty chart shows three months' interest, the IRD at your comparison rate and the posted-rate version side by side, and outlines the one that applies.
Why posted rates poison the IRD
The comparison rate should be the lender's current rate for a term matching your remaining months. But the Big Six banks plug in their posted rate, the sticker price almost nobody pays, instead of a discounted rate. Because the discount you originally received is folded back into the differential, the effective gap can be 2–4× larger, turning a fair few-thousand-dollar penalty into tens of thousands. The worst-case toggle adds 2 percentage points to the differential to approximate this. Monoline lenders and credit unions typically use fairer discounted comparison rates.
Monthly payments
A fixed rate compounds semi-annually, the way the Interest Act has lenders disclose it: effective monthly rate (1 + rate/2)^(2/12) − 1. A variable rate compounds monthly: rate ÷ 12. Your current payment uses your rate type; the new mortgage is priced as a fixed rate. Payment P·r ÷ (1 − (1+r)^−n). Monthly savings is the drop from your current payment to the new one.
Net position and break-even
A lower payment is not the same as a saving. Part of it can come from rolling the penalty into the new loan, or from repaying principal more slowly over a longer amortization. So each month the calculator compares where you stand against keeping your mortgage:
net position = payments saved − costs paid in cash − (new balance − balance if you keep)
which works out to the interest you have saved so far at the lower rate, minus the switching cost. Break-even is the first month the net position turns positive, and the year-by-year table marks the year it happens. The chart shades the gap green while you are ahead and red while you are behind. A much longer new amortization can pull ahead and then fall behind again as its extra years of interest add up; the chart marks both points. Dividing the switching cost by the monthly saving, the usual shortcut, double counts costs rolled into the new loan and treats slower principal repayment as a saving, so it can be years off.
Break now or wait for renewal
At renewal you can switch lenders without a penalty, so the real question is whether breaking now beats waiting. Assuming the same new rate is still on offer when your term ends, and that switching then costs the same fees but no penalty, measured on your renewal date:
break now vs wait = net position at renewal + fees = interest saved before renewal − penalty
Positive means breaking now leaves you better off; negative means waiting does. On a variable rate it also assumes your current rate holds until renewal. After renewal both paths pay the same rate, so the gap on your renewal date is the difference that carries forward. When the IRD sets your penalty and the new amortization is no shorter than your current one, breaking early pays only if your new rate is below roughly the lender's comparison rate (2 points lower with the posted-rate approximation): the IRD is designed to charge you about the interest you would save before renewal. The grid re-runs this comparison for new rates from 0.75 points below yours to 0.25 points above (columns) and for 6 to 60 months left in the term (rows), plus your own, holding your balance, current rate, comparison rate, amortizations and fees at your numbers. It is a scenario, not a forecast of rates at your renewal. At 0 months left you are already at renewal, so the grid and the penalty chart are hidden.
Interest saved, net of costs
Comparing raw lifetime interest across different amortizations is misleading, so this figure is measured over one fair horizon, your current remaining amortization. It is the cash you save on payments over that horizon (counting that the new mortgage's payments stop once it is paid off, so a shorter amortization gets credit for its payment-free years), minus any balance still owing on the new loan at the end, minus any switching cost you paid in cash. Rolling costs into the mortgage moves them into the balance instead, where their interest is still counted, so nothing is double-counted either way. It equals the net position in the last year of the table. A higher payment with a big lifetime saving is shown as its own trade-off, not an automatic "don't". It assumes your current rate would last the whole amortization, which is why the renewal comparison above matters when your term ends soon.
Cheaper alternatives to breaking
Prepay first: use your annual prepayment privilege (usually 10–20% of the original balance) before breaking, to shrink the balance the penalty is charged on. Blend-and-extend: ask your lender to blend your old rate with today's rate over a new longer term, no penalty. Wait for renewal: at renewal you can switch lenders penalty-free (fees only).
What this doesn't model
The 80% loan-to-value refinance cap (you can't borrow against more than 80% of your home's value), cash-out proceeds, GST/PST, the stress-test requalification when switching lenders, the Interest Act's cap of three months' interest once a term longer than five years has run five years (the calculator knows only the months left, so it may show a larger IRD), or what rates will actually be at your renewal. For those, see the mortgage calculator, home equity calculator, and affordability calculator. Dollars are counted at face value over time, not discounted, so the interest a shorter amortization avoids by repaying faster counts in full as a saving.
Common questions
How is the penalty for breaking a Canadian mortgage calculated?
For a variable-rate mortgage the penalty is three months' interest, your balance times your rate, divided by four. For a fixed-rate mortgage it is the greater of three months' interest or the Interest Rate Differential (IRD). IRD is roughly your balance times the gap between your contract rate and the lender's current rate for your remaining term, times the years left in your term.
Why do big-bank IRD penalties come out so high?
The Big Six banks calculate IRD using their posted rates rather than the discounted rate you actually pay. Because the discount you received is baked into the comparison, the effective differential can be 2 to 4 times larger than a fair-market IRD, producing penalties of tens of thousands of dollars. Monoline and credit-union lenders usually use fairer comparison rates.
What is the break-even point on a mortgage refinance?
It is the month the interest you save at the lower rate has paid back your total switching cost: the penalty plus discharge, legal and appraisal fees. The usual shortcut, switching cost divided by the drop in your monthly payment, can be years off when you roll the costs into the new mortgage or change the amortization, because a lower payment can simply mean repaying principal more slowly. If you would not break even before your term ends, waiting and switching at renewal, when there is no penalty, usually costs less.
Can I avoid the penalty instead of breaking my mortgage?
Often yes. Prepay your annual privilege (10 to 20 percent of the original balance) before breaking to shrink the balance the penalty is calculated on. Ask your lender about a blend-and-extend, which averages your old and new rates with no penalty. Or simply wait until renewal, when you can switch lenders penalty-free.
Are mortgage prepayment penalties tax deductible in Canada?
Not for a principal residence, the mortgage interest and any penalty are personal, non-deductible costs. A penalty may be deductible only where the mortgage financed an income-producing property or investment. Confirm with a tax professional.