Prepayment penalty

Variable-rate penalties are simple and usually small — three months' interest on your balance. Fixed-rate penalties are the greater of three months' interest or the interest rate differential (IRD), and the IRD can run into five figures, especially at a Big-6 bank that calculates it off posted rates.

Penalties most often hit when you sell mid-term, refinance to pull equity, or break to chase a lower rate. You can often avoid them by porting the mortgage to your new home, using your annual prepayment privilege, or doing a blend-and-extend instead of a full break.

Always get the exact penalty in writing from your lender and run the math first — sometimes the interest you'd save by switching doesn't cover the penalty, and sometimes it easily does. Our calculator estimates it before you commit.