Refinance
Break-Even
Should you break your mortgage to get a lower rate? This calculator shows your prepayment penalty, monthly savings, and exactly how long until you break even.
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Results are estimates for informational purposes only — not financial advice. Always consult a licensed professional before making decisions. Terms of use →
The math behind a refinance break-even
Refinancing to a lower rate sounds like an obvious win, but the prepayment penalty for breaking your current mortgage can wipe out years of savings if you don't run the actual numbers first.
Why the penalty isn't a fixed number
Canadian lenders charge whichever is higher between three months' interest and the Interest Rate Differential (IRD). The three-month interest calculation is simple and predictable. The IRD is not — it compares your existing rate to the lender's current posted rate for a term similar to what's left on your mortgage, and the gap between those two rates is multiplied by your remaining balance and remaining term. When rates have dropped significantly since you locked in, the IRD penalty can be many times larger than three months' interest, sometimes tens of thousands of dollars on a large mortgage.
Fixed-rate mortgages almost always have steeper penalties
If you're on a variable rate, your penalty is just three months' interest — full stop, no IRD calculation applies. This is one of the most overlooked advantages of variable rate mortgages: breaking one early is comparatively cheap. Fixed-rate mortgages, especially with several years remaining and a meaningful gap between your locked rate and current rates, can carry IRD penalties large enough to make refinancing not worth it even when the new rate looks significantly better on paper.
What actually determines your break-even point
Break-even isn't just about the penalty versus the new rate. Legal fees, appraisal costs, and discharge fees from your current lender all add to the upfront cost of refinancing. The break-even calculation should divide your total upfront cost (penalty plus fees) by your monthly interest savings to find how many months it takes to come out ahead. If you're planning to sell or move within that break-even window, refinancing usually isn't worth pursuing regardless of how attractive the new rate looks.
Refinancing FAQs
Key facts about breaking your mortgage in Canada.
What is an IRD penalty?
The Interest Rate Differential (IRD) is the most common penalty for breaking a fixed-rate mortgage early. It compensates the lender for the interest income they lose. It's calculated as: (your rate − lender's current posted rate for the remaining term) × balance × months remaining ÷ 12. Banks often use inflated posted rates, making IRD penalties much higher than the 3-month interest penalty.
What is the 3-month interest penalty?
Variable-rate mortgages typically have a penalty of 3 months' interest on the outstanding balance. This is usually much smaller than an IRD penalty, which is one reason variable mortgages are easier to exit early.
When does refinancing make financial sense?
Refinancing makes sense when: your monthly savings exceed your total costs (penalty + closing costs) within your planned time in the home; you need to access equity; or you want to switch from variable to fixed (or vice versa) based on rate expectations. A break-even period under 18–24 months is generally considered worthwhile.
Can I avoid the penalty by waiting for renewal?
Yes — if you wait until your mortgage term ends (renewal date), there is no prepayment penalty. If the rate difference is small or you're close to renewal, waiting is often the better financial choice.
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View all tools →Should you break your mortgage in 2026?
With rates having changed significantly, many Canadians are asking this question.
Banks calculate IRD using their posted rate (which is artificially inflated vs their actual rate), making penalties much larger than they should be. Credit unions and monoline lenders typically use more transparent IRD calculations. Always get the penalty in writing before deciding.
If you're within 12 months of renewal, the penalty will be large relative to the savings window. Many lenders also allow you to lock in early (30–120 days before renewal) at new rates without penalty. Ask your lender about their early renewal policy before paying a break penalty.
"Blend and extend" is a middle-ground option offered by many lenders: they blend your current rate with the new rate and extend your term, avoiding a formal break penalty. The blended rate won't be as low as breaking and refinancing, but avoids the penalty cost. Ask your lender if they offer this.
Breaking makes strong sense when: your rate is 2%+ above current rates, you have 2+ years remaining in your term, your break-even point is under 24 months, and you plan to stay in the home past the break-even. Those who locked in at 5–6% rates in 2022–23 with 3+ years remaining may have a strong case to break in 2026.