Same Mortgage, 9 Lenders, $6,613 To $23,000

By Alex McFadyen, Flow Mortgage Co | September 2026 | 11 min read

A client asked me this in April, and I've heard some version of it most weeks since: "We locked in at the highest rate. Would it be worthwhile to redo it? Would paying the penalty still work out to save us more?"

It's a fair question with an annoying answer, because the number that decides it isn't published anywhere you'd think to look. 2 people with identical mortgages can get payout statements $16,000 apart, and both statements are correct under the contract each person signed.

Plenty of Canadians signed 5-year fixed terms through 2023, and with the Bank of Canada's surveyed posted rate at 6.84% that September, contract rates commonly landed in the 5s. Those terms mature through 2028, which puts a large group of people roughly 2 years from the end and weighing whether to move early, with the penalty clause deciding most of it.

What the 9 lenders charge

On one $500,000 mortgage at 5.29% with 24 months remaining, the charge to break ranges from $6,612.50 to $23,000. The 7 most expensive all build a comparison rate out of posted rates or government yields. The 2 cheapest end up at the three months' interest floor, because their interest rate differential came in below it.

The mortgage we're testing

Every figure above comes off one set of inputs, held constant across all 9 lenders. Holding them constant is the whole point, because it isolates the contract clause as the only thing driving a $16,387 spread.

That 6.84% is the Bank of Canada's surveyed conventional 5-year posted rate for September 2023, and the 1.55% gap between it and your contract rate is your discount. Hold on to that number, because 4 of the 9 lenders use it against you later.

Every lender starts with the same sentence

Almost every Canadian fixed-rate mortgage says the charge is the greater of three months' interest or the interest rate differential. Lenders run both calculations and bill you the larger one. The wording is close to identical across the market, so the sentence tells you very little on its own.

Three months' interest is arithmetic. Nobody can dress it up, and it comes to $6,612.50 on this mortgage no matter who holds it. The interest rate differential is the one with a loose input, and on this mortgage that single input swings the bill by $12,888.

The comparison rate splits lenders into 2 camps

The interest rate differential asks what your lender loses by lending that money out again today. Answering it honestly means comparing your 5.29% against what they'd charge a real borrower right now, and roughly half the Canadian market does exactly that. The other half compares your rate against a posted rate, which is a number almost nobody pays.

Why subtracting your discount costs so much

The posted-rate camp takes the discount you negotiated off the 5-year posted rate and subtracts it from a 2-year posted rate. Banks typically discount 5-year terms far more than short ones, so carrying the big discount over to a short term pulls the comparison rate down well below anything real.

TD's own wording, which the other big banks echo closely, says the comparison rate will be "our posted interest rate for the term minus the most recent discount you received."

The posted 2-year rate is 4.89%. Subtract the 1.55% you negotiated off a completely different product 3 years ago and you get 3.34%. No lender I know of is offering a 2-year fixed anywhere near 3.34% today. That rate exists inside your penalty calculation and nowhere else, and the effect is a much wider gap for them to charge you on.

2 lenders get there differently. CIBC works off posted rates on both sides and runs the calculation on a declining balance, which comes to $16,338.87 here. National Bank interpolates between its posted terms and adds an extra month of interest capped at $500, bringing it to $11,200.

Equitable Bank's Standard product tops the chart at $23,000 without touching posted rates at all. It benchmarks against Government of Canada yields, and the 1-year treasury bill is at 2.99%, well under any mortgage rate on the market, so the gap opens up on its own. A monoline lender holding the largest charge of the 9 is worth knowing about if you assumed the big banks were always the expensive ones.

The 9 methods, side by side

Methods fall into 4 patterns. 7 of the 9 lenders charged more than double the three months' interest floor on this mortgage, and the 2 that didn't got there because their interest rate differential came in under the floor, not through any generosity in the clause.

A few caveats belong with that table. RBC, BMO and Scotiabank apply a present-value adjustment, so their real charge can come in somewhat under the figure shown. CMLS and Manulife are modelled from secondary sources on one or two mechanics, and I'd want a payout statement before quoting either with confidence. Strive's method isn't published in enough detail to estimate at all.

Variable-rate mortgages skip most of this. Nearly every Canadian lender charges three months' interest on a variable, with no interest rate differential in the picture. On this balance that's $6,612.50 whoever holds it, and it's an argument for a variable that rarely comes up when people are weighing fixed against variable.

When breaking still makes sense

A large charge doesn't settle the question by itself. We run the comparison on client files most weeks, and the penalty tends to clear in 3 situations. Sometimes the numbers say don't, and when they do I'll tell you it isn't worth it.

1. Consolidating higher-interest debt. When you're carrying credit lines or cards in the teens, the spread against a mortgage rate can cover a five-figure charge quickly. This is the most common one we see.
2. A materially lower rate with real time left. Interest saved over the remaining term has to beat the charge. With 2 years left the math is tight, and with 4 years left it often isn't close.
3. Freeing equity for something bigger. A renovation, a purchase, or a separation makes the charge a transaction cost against a larger move rather than a standalone expense.

The charge can usually be rolled into the new mortgage, so most clients never write a cheque out of pocket for it. You still pay it, spread across the new term instead of up front.

What to do before you decide anything

Request a written mortgage payout statement from your current lender. It's free, it usually takes a few days, and it's the only number that binds anyone. Every estimate you'll find online, including the one on this page, is a model of a clause.

While you wait, dig out your original commitment letter and look for the discount off posted, because that single figure drives the whole calculation at 4 of the big banks. Then find the prepayment section of your standard charge terms and read which rate the comparison gets built from. Between them, those 2 details will tell you most of what your payout statement is going to say.

Common questions

Can I negotiate my mortgage penalty down?

Sometimes, and rarely by much. The calculation follows your contract, so there's little room to argue the arithmetic. Where movement does appear is when you're staying with the same lender on a new mortgage, since some will waive or credit part of the charge to keep your business. Ask before you shop elsewhere.

Why is my penalty so much higher than three months' interest?

Because the interest rate differential beat the floor, and at the big banks that usually traces to the discount subtraction. Your original discount off the posted 5-year rate gets applied to a shorter posted term, which pushes the comparison rate down and widens the gap you're charged on.

Do variable-rate mortgages have the same penalties?

No. Almost every Canadian lender charges three months' interest to break a variable, with no interest rate differential involved. On a $500,000 balance at 5.29% that's $6,612.50, and it doesn't swing with rates the way a fixed-rate charge does.

Does the penalty change if rates go up?

Yes, and in your favour. The interest rate differential shrinks as current rates climb toward your contract rate, and it disappears once they pass it. At that point three months' interest becomes the charge. Falling rates work the other way and push the differential up.

Is the penalty tax deductible?

It can be, in specific cases. Where the mortgage is on a property that earns rental income, a prepayment charge is often deductible against that income. On a principal residence it generally isn't. Confirm your own situation with an accountant before counting on it.

Sources

• Bank of Canada, conventional mortgage posted rates (series V80691333, V80691334, V80691335). 5-year posted 6.84% at 2023-09-20 and 6.09% at 2026-09-16.
• Bank of Canada, Government of Canada benchmark yields. 1-year treasury bill 2.99% at 2026-09-16.
• Published prepayment disclosures and worked examples from RBC, TD, Scotiabank, BMO, CIBC, National Bank, First National, MERIX, CMLS, Manulife Bank and Equitable Bank.
• Financial Consumer Agency of Canada guidance on prepayment charges and disclosure.
• Flow Mortgage Co prepayment engine, tested against each lender's own published examples.

Alex McFadyen is the founder of Flow Mortgage Co and has spent 15 years arranging mortgages for Canadian families, with access to more than 65 lenders. Figures in this article are estimates for illustration and don't constitute a quote, an offer, or advice on your specific mortgage.