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. This tool models that penalty properly, then tells you your monthly savings and exactly which month you break even.
When you break even
Cumulative payment savings climbing past your one-time switching cost. Where the lines cross is your break-even month.
Year-by-year comparison
Cumulative savings, your net position after costs, and the new mortgage balance — year by year over your current remaining amortization.
| Year | Cumulative savings | Net position | New balance |
|---|
How this is calculated
The penalty (the number that makes or breaks the deal)
Every Canadian closed mortgage charges a penalty to break it early. For a variable rate it is always 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.
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 quietly 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 savings and break-even
Both payments use Canadian semi-annual compounding — effective monthly rate (1 + rate/2)^(2/12) − 1, payment P·r ÷ (1 − (1+r)^−n). Monthly savings is the drop from your current payment to the new one. The break-even month is switching cost ÷ monthly savings; if the new payment is higher, savings are negative and you never break even.
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, minus any balance still owing on the new loan at the end of it, 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.
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, or rate changes at the next renewal. For those, see the mortgage calculator, home equity calculator, and affordability calculator. Rules and reference rates verified as of July 2026.