A penalty changes depending on the date
The point where the change pays for itself
Add up the penalty, the discharge, the legal fees, and the switching costs. Then compare that total to the savings, but only over the period you’ll keep the new mortgage.
- Your balance and the payout date you’re targeting
- The penalty, in writing
- Costs and savings measured over the same period
$120 less a month, $6,000 in costs
A worked example
A $320,000 balance, 5.2% fixed, 32 months left. Three months of interest come to about $4,160. For the differential, the lender compares your rate with the one it would post today for a three-year term; if it uses 3.4%, the 1.8-point gap over 32 months gives about $15,360. The penalty is the higher of the two: $15,360. Another lender, with the same formula but a 4.2% comparison rate, would land at $8,530. Same balance, same agreement on the surface, a gap of nearly $7,000: the choice of comparison rate does all the work.
When it does not apply
An open mortgage, a home equity line, or the portion repaid within your annual privileges carry no penalty. A variable rate is generally limited to three months of interest, whatever the rate gap. And if you port the loan to a new property within the window in the agreement, the penalty is avoided or refunded. In those cases, this article’s calculation does not apply; it remains useful for comparing the offer of a lender that would apply it.
Asking your lender for the right number
The amount shown in your online account is calculated for today, with today’s comparison rate. What you want is a written payout statement for the date the new mortgage will fund, and it is usually valid for ten to thirty days. Once you have it, look at three lines. The comparison rate: is it the posted rate or the discounted rate, and for which term? The method: three months’ interest or differential, and on what balance. And the reinstated discount: several lenders recalculate the penalty as if you never had a discount off the posted rate, which can double the figure. If something does not make sense, ask for the detailed calculation; you are entitled to it. To test an order of magnitude before calling, the site’s penalty calculator shows both methods side by side, but the lender’s statement is what counts.
How Mathieu can help
Sources and review
FCAC — Prepayment penalties. Reviewed August 12, 2026.