Prepayment Penalty
Mortgage FeaturesLast updated: September 2026
What is Prepayment Penalty in Canadian mortgages?
Fee charged by lenders for paying off a mortgage before the end of its term. For variable-rate mortgages, typically 3 months interest. For fixed-rate, the greater of 3 months interest or IRD.
Prepayment Penalty example
Breaking a $400,000 fixed mortgage mid-term: 3-month interest = $5,500; IRD = $18,000. Penalty = $18,000 (higher of the two).
Related mortgage features terms
IRDA prepayment penalty charged by lenders when breaking a fixed-rate mortgage before maturity. Calculated as the difference between your contract rate and the lender's current posted rate for the remaining term.Open MortgageA mortgage that can be paid off at any time without prepayment penalty. Rates are higher than closed mortgages. Used when the borrower expects to sell or refinance soon.Closed MortgageA mortgage with restrictions on extra payments and early payoff. Lower rates than open mortgages. Prepayment privileges (e.g., 10-20% lump sum annually) are written into the contract.RenewalRenegotiating a mortgage at the end of its term. Borrowers can change lenders, rates, and terms without penalty. No re-qualification required if staying with same lender (for most products).PortingTransferring an existing mortgage (rate, remaining balance, and conditions) to a new property when moving. Avoids prepayment penalty. Subject to lender approval and re-qualification.Assumable MortgageA mortgage that can be transferred from seller to buyer, with the buyer taking over the existing rate and terms. Rare but valuable when existing rate is below current market rates.
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