Mortgage penalty calculator

By Sandra MacGregor on November 9, 2023
Estimated reading time: 4 minutes

Is it worth it to break your mortgage early? Use our mortgage penalty calculator to find out.

Nearly 60% of outstanding mortgages at Canadian banks will be up for renewal in the next three years, and home owners are in for a “payment shock” if interest rates don’t decline significantly, according to a market update released by RBC Capital Markets at the end of October 2023. Monthly payments could rise anywhere from 33% to 84%, depending on the year the mortgage comes due. If your mortgage renewal is on the horizon, you may already be keeping an eye on five-year fixed rates and five-year variable rates. Should you renew early or switch mortgage providers to get a good one?

A key factor to consider: if you have a closed mortgage and decide to break your mortgage contract before the agreed-upon term has expired, you’ll likely have to pay a prepayment penalty fee. A mortgage penalty calculator can help you figure out exactly how much those fees will be and make it easier to know whether it’s worth it to break your current mortgage contract early. (And if you’re a first-time home buyer, this is good to keep in mind, in case you spot a better mortgage rate down the road.)

What is a mortgage penalty?

When you successfully apply for a mortgage, you and your lender agree to a term—the length of time your contract is in effect, which can range from a few months to five years or more. If you need to break your mortgage contract before the term is up, your lender will usually charge a penalty fee. The fee is commonly known as a mortgage prepayment penalty. You may be charged a prepayment penalty if:

You make a larger additional payment towards your mortgage than your contract allows
You decide to go with another mortgage provider before your mortgage term expires
You pay back your entire mortgage amount before your term ends (including through the sale of your home)

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What do mortgage penalties cost?

The mortgage penalty calculator estimates how much it may cost you to break your mortgage early. There are a variety of factors that determine how much of a penalty you’ll have to pay to end your mortgage contract before the term ends, including:

Your current mortgage provider and your province or territory of residence
When your current mortgage started and the original term of the agreement
The type of rate (fixed or variable)
Your existing mortgage interest rate
The balance remaining on your current mortgage

Enter the information above into the mortgage penalty calculator to get an idea of what you might pay in penalties. Note that the amounts are estimates based on the lender, mortgage terms and other relevant details.

One of the key factors determining how much you’ll pay in penalties is whether your mortgage has a variable or fixed rate. If you have a variable-rate mortgage, you will most likely pay three months’ interest on your mortgage balance. If you have a fixed-rate mortgage, the penalty can be calculated two different ways, and you are likely to pay the higher of the two: either three months’ interest on your mortgage balance, or what’s known as the interest rate differential (IRD)—a penalty based on the difference between your current mortgage rate and the rate the lender would use if lending the funds today.

When is it worth paying the penalty?

Whatever number the mortgage penalty calculator gives you, keep in mind that in some cases, it may be favourable to break a mortgage contract. Calculate how much you’ll have to pay in penalty charges and compare it to what you could save over the course of your mortgage. (We also have calculators for mortgage affordability and what your monthly mortgage payment could be if you make the switch.) Doing the math is the best way to ensure you make an informed and financially smart decision regarding whether or not to break your mortgage contract.

A note about the mortgage penalty calculator

In using the above calculator, know that mortgage rates are based on the criteria you provide. It is possible a lender will offer a different rate than shown here when you actually apply for a mortgage. Rates can also vary based on an applicant’s credit history. Additional terms and conditions can apply. A true mortgage will have specific qualification criteria, including debt servicing ratios, credit, property value and other details. Results shown here only serve as examples, and do not take into consideration homeowners insurance or property taxes. The shown default rates are based on the following assumptions: an excellent credit history, the purchase of a single family home (under CAD$1,000,000) for personal occupancy, and a down payment of 20%.

Other mortgage calculators:

About Sandra MacGregor

Sandra MacGregor has been writing about personal finance, mortgages, investing and credit cards for over a decade.

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Comments Cancel reply

Manpreet says:

July 13, 2023 at 7:12 pm

Hi,

Using the calculator in this website, it is showing the amount of 6000$ for 5 year fixed term as I started fixed just now.
However, the bank -Equitable bank from which I have a loan is giving me a another amount with a very big number in difference if using their portal.

Could you please share if there are internal variables not known to public when calculating the penalty amount.

Reply
1. MoneySense Editors says:
  
  July 25, 2023 at 8:14 am
  
  Hi Manpreet,
  Thank you so much for letting us know. There are a number of fees we are unable to include, as it depends on the mortgage and lender. However, we are investigating for any issues with the calculator. Of course, we would like to remind you to do confirm any facts before making any personal finance decisions.
  
  Reply