The Big Bank
Mortgage Penalty
Report.
On our illustrative scenario, breaking a five-year fixed with 2 years left costs about $12,500 on a $500,000 balance under the posted-rate IRD the big banks use — 1.8× three months’ interest and $2,500 more than a contract-rate IRD. Every assumption is shown.
What the data shows.
Every figure is computed from our illustrative assumptions. Your real penalty is on the lender's written payout statement.
~$12,500 posted-rate IRD on a $500k balance
With 2 years left on a 5.49% five-year fixed, the posted-rate IRD is about $12,500, and about $25,000 on a $1M balance.
1.8× three months' interest
Three months' interest on the same $500k is $6,863. Because the IRD is larger, it is the one charged.
$2,500 more than a contract-rate IRD
A lender comparing against its actual current rate (4.49%) instead of posted-minus-discount (4.24%) would charge about $10,000. The posted-rate IRD is 1.25× that.
Largest early, smallest near renewal
Because the IRD scales with the time remaining, it is biggest early in the term and shrinks as you approach maturity — the opposite of when you most want to move.
How posted-rate IRD
works — and why
it costs more.
To break a closed fixed mortgage you pay the greater of three months’ interest or the interest rate differential (IRD). The IRD is the interest the lender loses over the rest of your term. Which comparison rate is used determines the size of that loss.
Borrowers who locked in near the 2023 rate peak and want lower rates before maturity are exactly where a posted-rate IRD can bite hardest. It’s not a reason not to act — it’s a number to put on one side of the scale.
Posted-rate IRD (big banks)
Comparison rate = the lender’s current posted rate for the remaining term, minus the discount you received when you signed2. Here: 5.79% − 1.55 = 4.24%, a gap of 1.25 pts to your 5.49% contract rate. Subtracting the discount lowers the comparison rate, widens the gap, and raises the penalty.
Contract-rate IRD (many monolines)
Comparison rate = the lender’s actual current rate for the remaining term. Here: 4.49%, a gap of 1.00 pts. Because today’s actual rate is higher than posted-minus-discount, the penalty is usually lower. Confirm the method in your mortgage’s prepayment section.
Three months' interest (the floor)
Balance × contract rate ÷ 4. Here: $6,863 on $500,0001. It is always the minimum charge and is usually the entire penalty on a variable-rate mortgage. You pay the greater of the applicable IRD and three months’ interest.
On $500,000 with 2 years left: posted-rate IRD = $500,000 × 1.25% × 2 = $12,500; contract-rate IRD = $500,000 × 1.00% × 2 = $10,000. Reproduce these figures in our mortgage penalty calculator.
How each Big 6 bank
calculates it.
RBC, TD, Scotiabank, BMO, CIBC and National Bank all use a posted-rate IRD on closed fixed terms. Tap any bank to see the wrinkles that matter when you switch.
Big 6 BankTD Canada Trust
TD Canada Trust
TD calculates fixed-rate penalties using its posted-rate IRD and registers most mortgages as a collateral charge, which can add a discharge step when you switch.
TD penalty calculatorBig 6 BankRBC Royal Bank
RBC Royal Bank
RBC publishes its method: the IRD compares your rate with RBC's posted rate for a term similar to the time remaining, less the rate reduction (discount) you received, with a present-value adjustment.2
RBC penalty calculatorBig 6 BankScotiabank
Scotiabank
Scotiabank applies a posted-rate IRD on closed fixed terms; mortgages registered under its STEP readvanceable plan are collateral charges, which affects switching at maturity.
Scotiabank penalty calculatorBig 6 BankBMO Bank of Montreal
BMO Bank of Montreal
BMO uses posted-rate IRD on closed fixed mortgages; its Smart Fixed and Homeowner ReadiLine products carry their own break and registration rules.
BMO penalty calculatorBig 6 BankCIBC
CIBC
CIBC calculates fixed-rate penalties with a posted-rate IRD, so the discount you received at signing is subtracted from today's posted rate before the gap is measured.
CIBC penalty calculatorBig 6 BankNational Bank of Canada
National Bank of Canada
National Bank applies posted-rate IRD on fixed mortgages; the All-in-One readvanceable product is collateral-charged and breaks differently.
National Bank penalty calculatorPenalty by balance
and method.
Every figure is computed from these assumptions. Plug in your own numbers with the penalty calculator.
Assumptions (illustrative, set September 24, 2026)
The posted-rate inputs are anchored to the typical big-bank posted rates the Bank of Canada publishes4; the rest are illustrative, not any lender’s rate on a given day.
| Input | Value | Note |
|---|---|---|
| Mortgage | 5-year closed fixed, signed October 2023 | Near the 2023 rate peak |
| Balance outstanding when you break | $400,000 / $500,000 / $750,000 / $1,000,000 | One row per balance |
| Your contract rate | 5.49% | Illustrative |
| Lender's posted 5-year rate when you signed | 7.04% | Typical big-bank posted 5-year rate from October 4, 2023 (Bank of Canada) |
| Discount you received at signing | 1.55 pts | 7.04% − 5.49% |
| Time remaining on the term | 24 months (2 years) | Break in about September 2026 |
| Current posted rate for the remaining term | 5.79% | Illustrative 2-year posted rate, between the typical big-bank 1-year (5.49%) and 3-year (6.05%) posted rates for the week of September 23, 2026 (Bank of Canada) |
| Current actual (discounted) rate for the remaining term | 4.49% | Illustrative 2-year rate a lender might offer today; see live rates on our rate board |
| Posted-rate IRD comparison rate | 4.24% | 5.79% − 1.55 discount; gap 1.25 pts |
| Contract-rate IRD comparison rate | 4.49% | Gap 1.00 pts |
Penalty by balance — 5.49% five-year fixed, 2 years remaining
Under either IRD method the lender charges the greater of the IRD and three months’ interest1; on this scenario the IRD is larger in every row (see methodology).
| Balance | Posted-rate IRD (big banks) | Contract-rate IRD (many monolines) | Three months’ interest | Posted IRD vs 3 months’ | Posted IRD vs contract IRD |
|---|---|---|---|---|---|
| $400,000 | $10,000 | $8,000 | $5,490 | 1.8× | 1.25× (+$2,000) |
| $500,000 | $12,500 | $10,000 | $6,863 | 1.8× | 1.25× (+$2,500) |
| $750,000 | $18,750 | $15,000 | $10,294 | 1.8× | 1.25× (+$3,750) |
| $1,000,000 | $25,000 | $20,000 | $13,725 | 1.8× | 1.25× (+$5,000) |
Source: Mortgage Squad Advisors analysis, assumptions set September 24, 2026. Illustrative estimates using a simple-interest IRD; actual penalty per the lender’s written payout statement. Try the calculator.
Every figure is computed in code from the assumptions table, using the same formulas as our public penalty calculator. Posted-rate IRD = balance × (contract rate − [current posted rate for the remaining term − original discount]) × (months remaining ÷ 12). Contract-rate IRD = balance × (contract rate − lender’s current rate for the remaining term) × (months remaining ÷ 12). Three months’ interest = balance × contract rate ÷ 4. The charge is the greater of the applicable IRD and three months’ interest. This simple IRD ignores the present-value discounting and declining balance some lenders apply (RBC describes both2), which usually make the real figure somewhat lower. Rates are illustrative (posted-rate inputs anchored to Bank of Canada data4), not a live feed or any single lender’s rate; the exact penalty on a real mortgage is set by the lender’s written payout statement on the discharge date. Analysis by Mortgage Squad Advisors (FSRA #13737); assumptions set September 24, 2026.
- Mortgage fees: Prepayment penalties, Financial Consumer Agency of Canada.
- Understanding mortgage prepayment charges, RBC Royal Bank.
- Mortgage prepayment: know your rights, Financial Consumer Agency of Canada.
- Posted interest rates offered by chartered banks (series V80691333-V80691335), Bank of Canada.
Journalists, editors and bloggers are welcome to cite this report. Please attribute it to Mortgage Squad Advisors with a link to this page. We’re happy to provide interviews, custom figures for a specific scenario, or a licensed mortgage broker to comment on the record.
Mortgage penalty
questions, answered.
IRD methods, lender differences, how to reduce your penalty — answered plainly.
How much does it cost to break a mortgage with a Big 6 bank?
On this report's illustrative scenario (a $500,000 balance on a five-year fixed at 5.49%, broken with 2 years left), a posted-rate IRD comes to about $12,500, versus $6,863 in three months' interest and $10,000 under a contract-rate IRD. On a $1,000,000 balance the posted-rate IRD is about $25,000. Your real figure is on the lender's written payout statement.
Why are big-bank mortgage penalties often higher?
Because the big banks use a posted-rate IRD. They take today's posted rate for the time left on your term and subtract the discount you received when you signed. That lowers the comparison rate, which widens the gap to your contract rate and raises the IRD. A contract-rate IRD compares against the lender's actual current rate instead, which is usually higher than posted-minus-discount, so the penalty is usually smaller.
How is the prepayment penalty calculated?
On a closed fixed mortgage you usually pay the greater of three months' interest or the interest rate differential (IRD), according to the Financial Consumer Agency of Canada. Three months' interest is roughly your balance times your rate, divided by four. The IRD is roughly your balance times the gap between your contract rate and the lender's comparison rate, times the years remaining. Which comparison rate is used depends on your mortgage terms.
Do monoline lenders really charge less to break a mortgage?
Often, but not always. Many monoline lenders use a contract-rate IRD, which on this scenario gives $10,000 instead of $12,500. The method is set by each mortgage's terms, so check the prepayment section of your own commitment. On a variable mortgage the penalty is typically three months' interest.
Can I avoid or reduce the penalty?
Sometimes. Options include porting your mortgage to a new home, using your annual prepayment privileges first, a blend-and-extend instead of breaking, or timing the break for when little term remains (the IRD shrinks toward renewal). Always request a written payout statement and compare the penalty against the interest you'd save before deciding.
Facing a penalty?
We’ll try to beat your rate, or pay you $500.¹
Send us your bank’s payout statement. As an FSRA-licensed brokerage we verify the true penalty and model whether breaking still wins — no obligation.
¹ Rate Beat: eligible Big-6 bank written offers only · same product, term & amount · $500 paid to you or your nominated charity at closing · conditions apply
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