Compare the mortgage break penalty you'd pay at a big bank (discounted IRD) versus a monoline or credit union (contract IRD). Know your numbers before you break your mortgage.
Big Bank (Discounted IRD): Canada's big banks subtract approximately 1.5% from the posted comparison rate before calculating the interest rate differential. This "discount" is applied to the rate you're comparing against — meaning the rate gap appears smaller, and your penalty is often lower than you'd expect. However, the exact discount varies by lender and is not always transparent.
Monoline / Credit Union (Contract IRD): Monoline lenders and many credit unions compare your contract rate directly to their current posted rate for the remaining term — with no discount applied. This produces a larger rate gap and typically a higher IRD penalty than the big bank method.
The rule: Your lender charges whichever is greater — 3 months' interest or the IRD. This calculator uses the higher of the two as your estimated penalty. Always confirm the exact calculation directly with your lender, as methods vary.
An Interest Rate Differential (IRD) penalty applies when you break a closed fixed-rate mortgage before the end of your term. It compensates the lender for the interest income they lose by re-lending your money at today's lower rates. The IRD is only charged if it exceeds the simpler 3-month interest penalty — whichever is higher applies.
Big banks calculate the IRD using a "discounted" comparison rate — they subtract roughly 1.0–1.75% from the posted rate before measuring the gap. This makes the rate differential appear smaller, reducing the penalty. Monoline lenders use your actual contract rate versus their current posted rate with no discount, which generally produces a larger gap and a higher penalty.
Yes — if you port your mortgage to a new property, your lender typically waives the penalty. You can also use available prepayment privileges (often 15–20% lump sum per year) to reduce your balance before breaking, which lowers the penalty. Timing your break near the end of your term when remaining months are few also minimizes the IRD amount.
It depends on the rate gap, your remaining term, and your new mortgage amount. A common rule of thumb: if the interest savings over the remaining term exceed 1.5× the penalty, breaking makes financial sense. Use our Break Penalty calculator on the main calculators page for a full break-even analysis.