IRD penalty calculator
Compare three-month interest, contract-rate IRD, and posted-rate IRD before you break a mortgage.
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Interactive calculator
IRD penalty calculator
Derive the payout penalty by comparing three-month interest with posted-rate and contract-rate IRD scenarios.
Calculation notes
Methodology for the ird penalty calculator
Estimate your mortgage prepayment penalty under both standard and posted-rate IRD formulas, plus the 3-month interest calculation for variable mortgages.
See how different IRD calculation methods produce dramatically different penalties — posted-rate IRD can be 2-3x higher than contract-rate.
Model your penalty at different points in the term to understand when breaking your mortgage becomes financially viable.
Use it before refinancing, selling, or porting to avoid penalty sticker shock.
Inputs to check
- Mortgage balance and current contract rate
- Months remaining in the term
- Posted-rate discount and current comparison rates
Assumptions
- Uses standard IRD and 3-month interest calculations per Canadian mortgage conventions.
- Posted-rate vs contract-rate IRD methodology varies by lender — confirm which applies to your mortgage.
- Prepayment privileges can reduce the balance subject to penalty before breaking.
- Penalties are directional estimates — exact amounts depend on calculation date and lender rounding rules.
How this calculator works
Estimate your mortgage prepayment penalty under both standard and posted-rate IRD formulas, plus the 3-month interest calculation for variable mortgages.
See how different IRD calculation methods produce dramatically different penalties — posted-rate IRD can be 2-3x higher than contract-rate.
Model your penalty at different points in the term to understand when breaking your mortgage becomes financially viable.
Use it before refinancing, selling, or porting to avoid penalty sticker shock.
Inputs you will need
- Mortgage balance and current contract rate
- Months remaining in the term
- Posted-rate discount and current comparison rates
Assumptions and limitations
- Uses standard IRD and 3-month interest calculations per Canadian mortgage conventions.
- Posted-rate vs contract-rate IRD methodology varies by lender — confirm which applies to your mortgage.
- Prepayment privileges can reduce the balance subject to penalty before breaking.
- Penalties are directional estimates — exact amounts depend on calculation date and lender rounding rules.
Example scenarios
Fixed-rate IRD penalty
$400K balance, 5.50% contract rate, 3 years remaining, market rate 4.25%. Contract-rate IRD: ~$15,000. Posted-rate IRD: ~$28,000. The formula nearly doubles the penalty.
Variable-rate penalty — simple
$400K balance at 5.70%. 3-month interest = $400K x 5.70% / 12 x 3 = $5,700. Predictable and much lower than any fixed-rate IRD.
Near maturity penalty check
$300K balance, 5.00% rate, 4 months remaining. 3-month interest = $5,000. IRD may be lower because rate differential applies to only 4 months — check both.
Prepayment privilege offset
Most lenders allow 15-20% annual prepayment without penalty. On $400K, prepay $60K-$80K penalty-free first, then break the reduced balance — reducing the penalty proportionally.
Related tools
Turn this savings math into a refinancing decision
Use the break-even, penalty, or renewal output alongside the refinance and renewal playbooks so you compare timing, costs, and fallback options before you switch.
Guides
Read the Canada-specific playbook before you commit to the next step.
Execution
Use the broker workflow, rates pages, or secure dashboard to move from estimate to action.
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Frequently asked questions
What is the difference between posted-rate and contract-rate IRD?
IRD compares your contract rate to current market rate for a matching remaining term. Posted-rate IRD uses the lender's posted rate (higher, inflating penalty). Contract-rate IRD uses your actual discounted rate (lower, fairer). Major banks often use posted-rate IRD, which can double or triple the penalty. Always ask before signing.
Is 3-month interest always lower than IRD?
For variable mortgages, 3-month interest is the only penalty type. For fixed mortgages, IRD usually applies and is typically higher — but near the end of a term (last 3-6 months), 3-month interest may exceed IRD because the rate differential applies to very little remaining time.
Can I reduce my penalty before breaking?
Yes. Use annual prepayment privileges first — prepay the maximum allowed (typically 15-20%), then break the reduced balance. On $400K with 20% privilege, prepay $80K penalty-free, then break $320K — reducing the penalty by 20%.
Do portable mortgages avoid the penalty?
Yes. Porting transfers your existing rate, balance, and terms to a new property. If the new mortgage is larger, you blend the existing rate with a new rate. If smaller, you may face a penalty on the difference. Porting avoids penalty on the transferred portion.
Are penalties tax-deductible?
Not for a principal residence — mortgage penalties on your home are not deductible. If the mortgage is on an investment property, the penalty may be deductible. If refinancing to access funds for investment, part of the penalty may be deductible. Consult your accountant.