IRD

IRD exists to compensate the lender for the interest they'll miss when you break a fixed mortgage early while rates have fallen. The bigger the gap between your rate and today's rate, and the more time left on your term, the larger the penalty.

The trap is how lenders calculate it. Many Big-6 banks plug their posted rate — not the discounted rate you actually got — into the IRD formula, which inflates the penalty dramatically, sometimes to $15,000–$30,000 on a mid-term break. Monoline lenders typically use a fairer calculation.

Before you break, refinance, or sell, get your exact penalty in writing and run the numbers. Sometimes a blend-and-extend, a port to your new home, or simply waiting a few months is far cheaper than paying the IRD outright.