How to use the Mortgage Penalty Calculator
- 1 Enter your mortgage balance.
- 2 Enter your rate and choose fixed or variable.
- 3 Enter the lender's current rate for the remaining term.
- 4 Enter the months left in your term.
Worked example
A $400,000 fixed-rate balance at 5.29%, with 30 months left and the lender's current rate at 4.09%. Three months' interest is $5,290. The IRD is $400,000 × 1.2% × 2.5 years = $12,000, so the estimated penalty is $12,000. With a variable rate, the penalty would be only three months of interest, which is $5,290 here.
Features
Three months' interest
The usual penalty for variable rates.
IRD
Rate difference × balance × time left.
Higher of the two
The rule most lenders use for fixed rates.
When to use it
Selling your home
Know the cost before you list.
Refinancing
Check whether a lower rate is worth it.
Blend and extend
Compare with breaking the mortgage.
Paying off early
See the cost of a lump-sum payoff.
Frequently asked questions
How is the penalty calculated?
Variable-rate mortgages usually charge three months' interest. Fixed-rate mortgages charge the higher of three months' interest and the IRD.
What is the IRD?
Your rate minus the lender's current rate for the remaining term, times the balance and time left.
Why do big banks charge more?
Some lenders use posted rates and discounts in the IRD formula, which can make penalties much higher.
Can I avoid the penalty?
Porting the mortgage, using prepayment privileges or blend-and-extend can reduce it.
Do prepayment privileges help?
Yes. Many mortgages allow 10% to 20% a year without penalty.
Is the penalty negotiable?
Sometimes, especially when you take a new mortgage with the same lender.
When is the penalty lower?
Near the end of the term, because fewer months remain, and when current rates are similar to or above your rate.
Can I port my mortgage?
Many mortgages can be moved to a new home within a set period, avoiding the penalty.
What is blend and extend?
Your lender blends your current rate with today's rate and extends the term, avoiding a penalty.
Will the lender tell me the exact amount?
Yes. Ask for a written payout statement before you decide.
Is the penalty tax-deductible?
Not on a home you live in. On a rental property, a mortgage penalty can usually be deducted over the remaining term.
How do I compare refinancing?
Compare the interest you save over the remaining term with the penalty and legal fees.
Does a closed or open mortgage matter?
Open mortgages can be paid off without penalty but have higher rates.
Results are estimates based on the official rates linked above. Confirm important figures with the issuing authority or a qualified adviser before you act on them.
Reviewed by ToolsUnlocked Team · Last updated