The Big Bank Mortgage Penalty Report
On our illustrative scenario, breaking a five-year fixed mortgage with 2 years left on a $500,000 balance costs about $12,500 under the posted-rate IRD the big banks use, and about $25,000 on a $1M balance. That is 1.8× three months’ interest ($6,863) and $2,500 more than a contract-rate IRD ($10,000) on the same mortgage.
Illustrative scenario; every assumption is in the table below. The exact figure is set by the lender's written payout statement.
Calculate your penaltyKey findings
~$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 your 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.
Assumptions (illustrative, set September 24, 2026)
Every figure on this page is computed from these inputs. 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. Plug in your own numbers with the penalty calculator.
| 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 |
The data: penalty by balance and method
Illustrative cost to break the five-year fixed above (5.49%, 2 years remaining). Under either IRD method the lender usually 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’ interest | 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.
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How posted-rate IRD works, and why it is larger
To break a closed fixed mortgage you usually pay the greater of three months’ interest or the interest rate differential (IRD)1. The IRD is the interest the lender loses over the rest of your term: roughly your balance × (your contract rate − a comparison rate) × years remaining. The method is set out in your mortgage terms, and federally regulated lenders must explain how they calculate it3.
- Posted-rate IRD (big banks). Comparison rate = the lender’s current posted rate for a term close to the time you have left, minus the discount you received when you signed2. Here: 5.79% − 1.55 = 4.24%, a gap of 1.25 points to your 5.49%. Subtracting the discount lowers the comparison rate, which widens the gap and raises the penalty.
- Contract-rate IRD (common at many monoline lenders). Comparison rate = the lender’s actual current rate for the remaining term. Here: 4.49%, a gap of 1.00 points.
- Three months’ interest. Balance × contract rate ÷ 4. Here: $6,863 on $500,000. It is the floor, and it is usually the whole penalty on a variable mortgage.
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. The bigger the discount you negotiated at signing, the bigger the gap under the posted-rate method. You can reproduce these figures in our mortgage penalty calculator.
How each Big 6 bank calculates it
RBC, TD, Scotiabank, BMO, CIBC and National Bank use a posted-rate IRD on closed fixed terms. Your own mortgage terms and payout statement govern. The wrinkles that matter when you switch:
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 calculatorRBC 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 calculatorScotiabank
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 calculatorBMO 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 calculatorCIBC
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 calculatorNational 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 calculatorWhy this matters now
Borrowers who locked in near the 2023 rate peak and want lower rates before maturity are exactly the case where an IRD tends to exceed three months’ interest: the IRD only bites when the lender’s comparison rate for the remaining term is below your contract rate. The penalty isn’t a reason not to act; it’s a number to put on one side of the scale. Breaking still wins when the interest you’ll save over the remaining term beats the penalty plus fees, but only if you know the real penalty first.
See whether breaking pays off with our refinance and blend-and-extend vs break analysis, and read why the charge differs so much by lender in monoline vs bank.
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. The 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.
How much does it cost to break a mortgage with a Big 6 bank?
Why are big-bank mortgage penalties often higher?
How is the prepayment penalty calculated?
Do monoline lenders really charge less to break a mortgage?
Can I avoid or reduce the penalty?
Facing a penalty? We’ll find the real number.
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.