Breaking a mortgage early almost always triggers a prepayment penalty. On a variable mortgage that is usually about three months' interest; on a fixed mortgage it is the greater of three months' interest or the interest rate differential (IRD). Weigh the penalty against your savings using our mortgage calculators and check the live rate first.
Break your mortgage only if the savings beat the penalty plus fees. Variable penalties are usually three months' interest; fixed penalties are the greater of three months' interest or the IRD, which can be large. Breaking pays off after a big rate drop, when selling, or when refinancing. This is not financial advice.
Your penalty depends on your mortgage type. A variable-rate mortgage typically costs about three months' interest to break — a relatively small, predictable number. A fixed-rate mortgage is different: the lender charges the greater of three months' interest or the interest rate differential. Because the IRD can be far larger than three months' interest, fixed mortgages are usually the more expensive ones to exit, especially early in the term when a lot of interest remains.
The interest rate differential is, broadly, the difference between the rate you are paying and the rate the lender could earn today by re-lending your money for the time left on your term, applied to your outstanding balance. In shorthand: take your remaining balance, multiply by the gap between your rate and the comparison rate, then multiply by the number of years (or fraction of a year) left on the term. Some lenders use the posted rate rather than the discounted rate in this comparison, which can inflate the figure — read your mortgage contract to see which method applies.
Here is an illustrative example only. Suppose you owe $300,000 at a fixed rate of 5.0% with three years left, and comparable three-year money is now around 3.5%. The rate gap is 1.5%. A rough IRD is $300,000 × 1.5% × 3 years = about $13,500. If three months' interest on the same balance is roughly $3,750, the lender charges the greater figure — the IRD of about $13,500. These numbers are illustrative; your lender's exact formula, comparison rate and remaining term will change the result, so always request a written quote.
Breaking can be worth it in a few situations:
| Situation | Why it can pay off |
|---|---|
| Rates have dropped sharply | Lower interest over the remaining term may exceed the penalty |
| Selling your home | If you cannot port, breaking ends the loan cleanly |
| Refinancing to consolidate debt | Rolling high-interest debt into the mortgage can cut monthly costs |
| Switching to a better product | Moving to a term or feature that fits your plans |
Before you commit, ask whether porting or a blend-and-extend would achieve your goal without a full penalty. If rates are still falling, keeping an eye on the next rate decision on July 15, 2026 and the rate history can help you time the move.
The penalty is rarely the only cost. You may face a discharge or administration fee, an appraisal, legal or notary fees, and the clawback of any cashback you received when you signed. Add all of these to the penalty and compare the total against your projected interest savings over the remaining term. If the savings comfortably exceed the total cost, breaking may be sensible; if it is close, staying put or negotiating with your current lender is often the safer choice.
On a variable-rate mortgage the penalty is usually about three months' interest. On a fixed-rate mortgage it is the greater of three months' interest or the interest rate differential (IRD), which can run into thousands of dollars depending on your rate and remaining term.
The IRD is a penalty that roughly equals the difference between your current rate and the rate the lender could charge today for the time left on your term, applied to your outstanding balance. When your rate is higher than today's rates, the IRD is larger.
Breaking can make sense when rates have dropped enough that your interest savings outweigh the penalty, when you are selling and cannot port the loan, or when you refinance to consolidate debt. Always compare the total penalty and fees against the savings before deciding.
Often yes. Porting lets you move your existing rate and terms to a new property, avoiding a break penalty if you are buying and selling around the same time. Blend-and-extend is another option that folds a new rate into your existing one without a full break.
No. Beyond the penalty you may owe a discharge or administration fee, appraisal costs, legal fees, and the loss of any cashback you received. Add these to the penalty when weighing whether breaking is worth it.