Mortgage · Penalty
IRD penalty calculator.
A Canadian lender works out the interest rate differential (IRD) from two rates, and the Financial Consumer Agency of Canada (FCAC) lists two ways to pick each one. That is four possible penalties from one mortgage. Enter your rates once and see all four against the 3-months'-interest floor.
FCAC says the prepayment penalty will usually be the higher of 3 months’ interest on what you owe and the IRD. The IRD is the interest left on your term at one rate minus the same interest at another, so which two rates your lender uses decides the bill. If you were given a discount, comparing the posted rate you signed at with today’s posted rate minus that discount costs the most.
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Your penalty range
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The four methods, in FCAC’s own words
FCAC says the penalty “will usually be the higher of” 3 months’ interest on what you still owe and the interest rate differential. It adds that the lender “will usually use the IRD calculation” if your rate is higher than the current rate and you signed your current contract less than 5 years ago.
To calculate the IRD, FCAC says a lender “typically uses 2 interest rates” and works out the interest left to pay on your current term at each. For the first rate it can use the posted rate when you signed or your contract (discounted) rate. For the second it can use the current posted rate for a similar term, or that rate minus the discount you were originally offered. Two choices times two choices gives the four rows in the table.
Why three numbers, not four
Your discount is the posted rate at signing minus your contract rate. Take your contract rate and the current posted rate minus that discount: the discount cancels, and the gap equals the posted rate at signing minus the current posted rate. So the first and last methods always give the same IRD. The method that mixes the old posted rate with the new discounted rate counts your discount against you a second time, and it is the one that makes the penalty largest. The method that compares your contract rate with the current posted rate is the smallest when you have a discount.
Worked example (FCAC’s numbers)
FCAC’s example is a $200,000 balance at 6%, 36 months left, with the current posted rate for a 36-month term at 4%. Three months’ interest is $3,000 and the IRD is $12,000 (a 2-point gap on $200,000 for 3 years), so the penalty is $12,000. Enter those figures with a posted rate at signing of 6% and you get exactly that, with all four methods agreeing.
With this page’s starting values ($300,000, 5% contract, 6% posted at signing, 4.5% posted now, 30 months left), the penalty runs from $3,750 (the 3-month floor, because the contract-vs-posted gap is only 0.5 points) to $18,750 (the posted-at-signing vs discounted-current-rate method, a 2.5-point gap).
What this does not know
It does not know your lender’s method, which rate it treats as “current posted”, or whether it amortizes the balance over the rest of the term (the flat estimate here is how FCAC’s example is worked, and an amortizing calculation can come out lower). FCAC says the way a penalty is calculated varies from lender to lender, that federally regulated lenders must tell you how they calculate it, and that the details must appear in an information box at the start of your mortgage agreement. Read that box, and use your lender’s own penalty calculator for the figure you will be charged.
Source, read 15 October 2026: FCAC — Mortgage fees: Prepayment penalties (page dated 15 October 2025): the greater-of rule, when the IRD is usually used, the four rate choices, the $200,000 example and the disclosure requirements.
Frequently asked questions
What is the IRD on a Canadian mortgage?
The interest rate differential is the difference between the interest left to pay on your current term at one rate and at another. FCAC says a lender typically uses two rates for it. The penalty is usually the higher of the IRD and 3 months’ interest on what you still owe.
Why can the same mortgage have different IRD penalties?
Because the lender chooses which two rates to compare. FCAC lists the posted rate at signing or your contract rate for the first, and the current posted rate, or that rate minus your original discount, for the second. This page runs all four.
What is a posted rate and what is a discounted rate?
FCAC calls the rates a lender advertises for each term its posted rates. If the rate in your contract is lower than the posted rate, it is a discounted rate. The size of the gap is your discount.
Is the IRD always charged?
No. FCAC says the lender will usually use the IRD if your rate is higher than the current rate and you signed less than 5 years ago. Where the lender does not use it, the 3-month figure is what remains. Your contract decides.
How can I reduce an IRD penalty?
FCAC suggests using your prepayment privileges every year, making a lump-sum prepayment before you break, waiting until the end of your term if the penalty is large, porting your mortgage when you move, and shopping around at renewal.
Is this the number my lender will charge?
No. It is a flat estimate from the rates you enter. Ask your lender for the penalty in writing and compare it with the range here; if it is above the top of the range, ask which rates and which term they used.
Estimate only — confirm with your lender
This tool shows the arithmetic for the four rate pairs FCAC describes, using rates you type. It does not know your lender’s contract, method, rounding or fees (an administration fee may be added). Confirm the figure with your lender before you act.