Mortgage penalty calculator

There are two main ways mortgage penalties are calculated, and they depend on the type of mortgage you have. The penalty to break a variable-rate mortgage mid-term is simply three months-worth of interest charges. However, it’s more complicated with a fixed-rate mortgage; in this case, a formula called the Interest Rate Differential is applied, which determines the difference between the existing interest rate, and a similar posted rate offered by the lender. It determines how much interest you would have paid if your lender gave you your mortgage at today’s rates, for the remainder of time left in your term.

Unless your mortgage product comes with the ability to pay off your mortgage early, either via a lump sum or through accelerated payments, you’ll incur a penalty if you pay it off before your term ends, as this is essentially breaking the mortgage. In this case, you must pay three months’ worth of interest if your mortgage has a variable term, or the interest rate differential if it has a fixed term.

Also read: Should I pay down my mortgage with a lump sum, or invest?

If you are breaking a variable mortgage term, you’ll need to pay three-months’ worth of interest as a penalty. The amount you’ll pay depends on your interest rate. Using the calculator above as an example, let’s assume you have a $500,000 mortgage with a variable term and a rate of 5.95%. Your resulting mortgage penalty will be $4,463.