Mortgage penalties & early payout · Calgary & all of Alberta
What does it cost to break my mortgage? Alberta penalties, lender by lender
Your prepayment charge is not one number. It turns on a single sentence in your mortgage that almost nobody reads — and on the discount you negotiated years ago.
About 20 minutes, no credit check to start, no obligation. Or call (403) 241-3255.
Josh Tagg is a Calgary mortgage broker who works out what breaking a mortgage actually costs before anyone commits to it. He leads the Mortgages for Less team at INDI Mortgage, has been arranging mortgages in Alberta since 2006, took over the brokerage his father founded in 2003, and is licensed by the Real Estate Council of Alberta. The team holds a 5.0 rating from close to 300 Google reviews. This office keeps something most brokers do not: an archive of 897 dated lender rate sheets going back to 2019, covering both the posted rates and the real broker rates those lenders were offering on any given day. That archive is what turns “your penalty depends on the posted rate at the time” into an actual number. If you are deciding whether to break, switch, refinance or wait, send us your commitment or your renewal letter and we will tell you what the charge is and whether moving beats staying. We will also tell you when the answer is to do nothing. Book a call, apply online, or phone (403) 241-3255.
Worked in full further down this page, from rate sheets dated 20 September 2024 and 14 July 2026.
Which of the two numbers will I actually pay?
Every closed mortgage in Canada charges the greater of two amounts when you pay it out early. You do not get to choose, and neither does your lender — the contract picks whichever is bigger.
| The test | How it is figured | When it wins |
|---|---|---|
| Three months’ interest | Three months of interest on the amount you are paying out, at your own mortgage rate. | Almost always on a closed variable mortgage. On a fixed mortgage it wins when rates today are similar to or higher than the rate you are carrying. |
| Interest rate differential (IRD) | The gap between your rate and the lender’s comparison rate, multiplied across your balance and the time left in the term. | On a fixed mortgage when rates have fallen since you signed — which is the position most Alberta borrowers who signed in 2023 and 2024 are now in. |
That is the part every article gets right. Here is the part they skip: the two lenders do not use the same comparison rate, and that single choice can double the charge.
The sentence in your mortgage that decides the size of your penalty
Find your mortgage commitment or your standard charge terms and look for the paragraph on prepayment. You are hunting for one thing: what rate does the lender compare yours against? There are only two answers, and they are worth thousands of dollars apart.
| Lender | What the comparison rate is, in their own words | What that means for you |
|---|---|---|
| TD | “the posted interest rate for a similar mortgage, minus any rate discount you received” (TD) | Posted rate, then your old discount taken back off it. The bigger your discount was, the lower the comparison rate, the bigger the penalty. |
| RBC | “our posted rate on the prepayment date for a mortgage with a term similar to the time remaining in the term … less your rate reduction” (RBC) | Same structure, same effect. “Rate reduction” is the discount you negotiated. |
| Scotiabank | the “current posted interest rate … for a term that is closest to the remaining term … less any rate discount you received” (Scotiabank) | Same structure. Scotiabank also discounts the result to present value, which trims it slightly. |
| CIBC | your rate “plus any interest rate discount you received” measured against “CIBC’s current posted interest rate for the comparison mortgage” (CIBC) | The discount is added to your side instead of subtracted from theirs. Identical arithmetic, identical result. |
| First National | “the difference between your current mortgage interest rate and the current First National interest rate on a replacement mortgage for the time remaining on your mortgage term” (First National) | No posted rate and no discount add-back appear in that wording. Your rate against their real rate for the time you have left. |
Read your own documents, not this table. Wording changes, products differ, and the terms that govern your mortgage are the ones you signed — not the ones on a lender’s website today. What this table is for is knowing which two words to look for: “posted” and “discount”. If both appear in your prepayment clause, you are on the expensive formula. If the clause simply says the lender’s current rate for the remaining term, you are not.
Why the discount you were pleased with is the number that inflates your penalty
This is the part that catches people, and it is genuinely counterintuitive: on the big-bank formula, the harder you negotiated at signing, the larger your penalty is years later.
Work through it. The bank takes its posted rate for a term close to what you have left, then subtracts the discount you got. Subtracting a bigger discount produces a lower comparison rate. A lower comparison rate produces a bigger gap against the rate you are paying. And the penalty is that gap, multiplied by your balance and the years remaining. A 2.00-point discount and a 0.50-point discount on otherwise identical mortgages are not the same file at payout time.
So the obvious question is: how big were those discounts? Nobody publishes that. We have it, because we have kept the broker rate sheets. Here is TD’s own five-year fixed, posted against the rate it was actually lending at, from 126 dated sheets in our archive.
| Year signed | TD posted, 5-yr fixed | TD broker rate the same day | Discount off posted |
|---|---|---|---|
| 2020 | 4.59–4.84% | 1.94–2.34% | 2.25–2.65 pts |
| 2021 | 4.59% | 1.94–2.84% | 1.75–2.65 pts |
| 2022 | 4.59–6.34% | 2.94–5.54% | 0.40–1.65 pts |
| 2023 | 6.34–7.04% | 5.04–6.34% | 0.50–1.30 pts |
| 2024 | 6.79–7.04% | 4.74–5.67% | 1.22–2.05 pts |
| 2025 | 6.09–6.79% | 4.39–5.09% | 1.40–2.40 pts |
| 2026 (to 14 Jul) | 6.09% | 4.49–4.84% | 1.25–1.60 pts |
Owner-occupied, conventional, 25-year amortization, from TD broker rate sheets dated 26 February 2019 to 14 July 2026. Posted rates are cross-checked against an independent monthly posted-rate series and agree at 14 July 2026.
The same lender’s discount ranged from 0.40 points to 2.65 points inside six years. Two borrowers carrying the identical rate, with the identical balance and the identical time left, can face very different charges purely because of the month they signed. That is not a quirk. On the posted-rate formula it is the main event, and it is invisible to you unless somebody kept the sheets.
If the posted-versus-real distinction is new to you, we have written it up separately: posted rate vs discounted rate, and the mechanics of the charge itself in mortgage penalties and the IRD, explained.
The same borrower, two lenders: $8,880 against $4,840
Here is the comparison worked end to end, with no illustrative rates. Every figure comes from a dated rate sheet.
The borrower. A Calgary homeowner who took a five-year fixed on 20 September 2024 and wants out now, in September 2026, with $400,000 outstanding and three years left in the term.
| At TD | At First National | |
|---|---|---|
| Rate they signed at, 20 Sep 2024 | 4.74% | 4.84% |
| Lender’s posted 5-yr that day | 6.79% | n/a to the formula |
| Discount off posted | 2.05 pts | Not used |
| Comparison rate today, 3-yr term | 6.05% posted − 2.05 = 4.00% | Current 3-yr rate = 4.84% |
| Rate differential | 4.74 − 4.00 = 0.74 pts | 4.84 − 4.84 = 0.00 pts |
| IRD on $400,000 × 3 years | $8,880 | $0 |
| Three months’ interest | $4,740 | $4,840 |
| Charge to break (the greater) | $8,880 | $4,840 |
A $4,040 difference — and the bank borrower had the better rate. TD’s 4.74% beat First National’s 4.84% by a tenth of a point, worth roughly $400 a year on this balance, or about $2,000 across a full five-year term. The prepayment clause gave back twice that in a single transaction. That is the trade, stated plainly: a slightly sharper rate against a materially more expensive exit. Neither answer is wrong. It is only wrong if nobody tells you it is a trade.
And it is the posted rate doing the work, not the market. On 14 July 2026 TD’s posted three-year was 6.05% while the three-year it was actually lending at was 4.64%. Run this borrower’s IRD against that real 4.64% and the differential falls to 0.10 points, the IRD falls to $1,200, and the three-month test wins at $4,740. The comparison-rate clause converts a $4,740 penalty into an $8,880 one — and flips the file from the cheap test to the expensive one.
Where the rates come from: TD broker rate sheets dated 20 September 2024 and 14 July 2026; First National’s published conventional grid for the same two dates (sheets dated 20 September 2024 and 30 June 2026, the one in effect on 14 July). Owner-occupied, conventional, 25-year amortization, $300,000–$500,000 tier. TD’s posted rates agree with an independent monthly posted-rate series at both dates.
How these are calculated: rate differential × balance × years remaining, and three months’ interest as rate × balance ÷ 4. This is the straight-line method brokers and most bank calculators use. It holds the balance constant rather than amortizing it, and it does not discount the result to present value the way Scotiabank’s published method does — both of which make the real figure somewhat lower. It is the right tool for deciding whether to look further. It is not a quote. Only your lender can issue the binding payout figure, and you should always get it in writing before you commit to anything.
Is breaking early worth it? One line of arithmetic
There is a simple test, and it is the one Josh Tagg runs first on every file before anything else gets discussed:
Penalty ÷ balance ÷ years remaining = the rate improvement you need just to break even.
Take the borrower above. At TD: $8,880 ÷ $400,000 ÷ 3 = 0.74 points. They would need to beat 4.74% by three-quarters of a point — a rate under 4.00% — before breaking early puts a single dollar back in their pocket. Against a three-year market sitting near 4.64%, the answer is no. At First National the same test needs only 0.40 points, which is a much more reachable bar.
Two things that arithmetic does not capture, and both matter:
- Debt consolidation changes the question entirely. If breaking the mortgage lets you fold in credit cards at 22% or a car loan at 9%, the comparison is no longer mortgage rate against mortgage rate. It is the whole monthly obligation before against after. That is usually where breaking early actually pays, and it is what most of our refinance files are. One Calgary household freed up $2,800 a month that way; another cleared $105,000 of debt without selling.
- You may not have a choice. If you are selling, separating, relocating for work or paying out an estate, the penalty is a cost of the move, not an optional trade. Then the job is making it smaller, which is the next section.
Five ways to make the charge smaller — or make it disappear
| Move | What it does | Worth checking when |
|---|---|---|
| Wait for renewal | No prepayment charge applies at the end of your term. Switching lenders at maturity is free. | You are within a few months of maturity. Most lenders will hold a rate for you 90 to 120 days out. |
| Use your prepayment privileges first | The charge is calculated on the amount you pay out. Lowering the balance before you break lowers the charge. | You have cash on hand and an unused annual lump-sum privilege. We compared what each Alberta lender allows. |
| Port the mortgage | Takes your existing rate and term to the new property instead of breaking the contract. | You are moving rather than refinancing. Watch the porting window and whether the new amount needs blending. |
| Blend and extend | Your lender merges your existing rate with a current one over a new, longer term rather than charging the penalty outright. | You need more money or a longer runway and your lender offers it. Note what it does and does not do: blending now protects you from the blended rate rising as the cheap portion of your term shrinks. It does not get you a rate below what you are quoted today. |
| Pay it and refinance anyway | Rolls the charge into the new mortgage when the savings on the other side are larger than the cost. | High-interest debt is in the picture, or the rate gap clears the break-even test above with room to spare. |
One clause to check before you count on any of this. Some mortgages — more often on the alternative and specialty side than at the big banks — carry a bona fide sales clause, which means the lender will not let you pay the mortgage out mid-term at all unless the property is genuinely being sold at arm’s length. If that clause is in your commitment, refinancing elsewhere before maturity is not on the table at any price, and the planning changes completely. It is worth knowing before you start shopping, not after.
Who this page is for
- You signed at the peak and rates have come down. Alberta borrowers who took a fixed mortgage in 2023 or 2024 are the ones for whom the IRD test now bites. Work out the number before you assume either way.
- You are selling, separating or relocating. The charge is part of your closing math and it belongs in the plan early, not in a payout statement the week before possession.
- You are carrying expensive debt behind a cheap mortgage. The penalty is real, and it is often still the smaller number. That comparison is the one to run.
- You are choosing a lender right now. This is the cheapest moment to care about prepayment terms, and the only moment you have any leverage over them. A rate table will not tell you which lender will be expensive to leave.
- You have been quoted a figure you do not believe. Bring the payout statement. We will show you which formula produced it and whether it matches what your commitment says.
If you are in any of those five positions, the useful next step is a short conversation with a broker who will do the arithmetic in front of you. Josh Tagg takes these calls across Alberta — book one or phone (403) 241-3255.
Where we work
Mortgages for Less is based in Calgary and licensed across Alberta. We work with homeowners in Calgary, Edmonton, Red Deer, Lethbridge, Fort McMurray, Airdrie, Cochrane, Okotoks, Chestermere and the surrounding communities. Penalty questions are handled by phone, email and e-signature, so where you are in the province makes no difference to how fast Josh Tagg and the team can answer one. A full list of what we handle is on our mortgage services page.
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Common questions about breaking a mortgage in Alberta
How is a mortgage penalty calculated in Canada?
On a closed mortgage you pay the greater of three months’ interest on the amount being paid out, or the interest rate differential (IRD). Three months’ interest is your rate multiplied by the balance, divided by four. The IRD is the gap between your rate and the lender’s comparison rate, multiplied across your balance and the time left in the term. Which one you pay is decided by the contract, not by you or the lender.
Why is my bank’s penalty so much bigger than I expected?
Because of the comparison rate. TD, RBC, Scotiabank and CIBC all compare your rate against their posted rate for a term close to the time you have left, adjusted for the discount you received when you signed. Posted rates sit well above what those lenders actually lend at — on 14 July 2026 TD posted 6.05% on a three-year while lending at 4.64% — and subtracting your old discount pushes the comparison rate lower still. Both steps widen the gap the penalty is built on.
Does a bigger discount really mean a bigger penalty?
On the posted-rate formula, yes. The lender subtracts the discount you received from its comparison rate, so a larger discount produces a lower comparison rate and therefore a larger differential. From our archive of TD broker rate sheets, the discount off posted on a five-year fixed ranged from 0.40 points in spring 2022 to 2.65 points in 2020 and 2021. Two borrowers with the same rate, balance and remaining term can face very different charges depending only on when they signed.
What is the penalty on a variable-rate mortgage?
Almost always three months’ interest on the balance, whatever rates have done. There is no IRD test on a standard closed variable mortgage, which is one of the practical reasons a variable is cheaper to exit. Confirm it against your own terms — variable products with fixed payments or with a hybrid structure can differ.
How do I find out what my lender will compare against?
Open your mortgage commitment or your standard charge terms and read the prepayment paragraph. Look for two words: “posted” and “discount”. If the clause says the comparison rate is the lender’s posted rate for a similar term less the discount you received, you are on the expensive formula. If it simply refers to the lender’s current rate for the remaining term, you are not. Send us the page if you would rather not decode it.
Can you tell me my exact penalty?
We can calculate it closely, and we will show you the inputs. We cannot issue it — only your lender can produce the binding payout figure, and you should get that in writing before you commit to anything. What we can do, using dated rate sheets rather than guesses, is tell you what the number is likely to be, whether it passes the break-even test, and whether the payout statement you were sent actually matches the formula in your own contract.
How much does the rate have to drop before breaking early is worth it?
Divide the penalty by your balance, then by the years remaining in your term. The result is the rate improvement you need just to break even. A $8,880 penalty on $400,000 with three years left needs 0.74 points. A $4,840 penalty on the same file needs 0.40 points. The test ignores debt consolidation, which frequently changes the answer entirely.
Is there any penalty if I wait until renewal?
No. At the end of your term you can move your mortgage to another lender with no prepayment charge at all. If you are within about four months of maturity, waiting is usually the cheapest route by a wide margin, and most lenders will hold a rate for you 90 to 120 days ahead. See how renewals work.
Can I avoid the penalty by porting my mortgage?
Often, if you are moving rather than refinancing. Porting carries your existing rate and remaining term to the new property instead of breaking the contract. Watch two things: the window between selling and buying that your lender allows, and what happens if you need a larger mortgage — the increase is normally blended with a current rate, which changes your overall rate.
What is a bona fide sales clause?
A clause that prevents you from paying the mortgage out mid-term unless the property is genuinely being sold at arm’s length. It appears more often on alternative and specialty mortgages than at the big banks. Where it applies, refinancing elsewhere before maturity is not available at any price — so it is worth checking before you plan around a payout.
Can the penalty be added to the new mortgage instead of paid in cash?
Usually, provided there is enough equity to carry it. On a refinance the charge is typically included in the new mortgage amount along with legal costs. That keeps cash in your pocket, but it also means you are financing the penalty over the amortization, so it belongs in the break-even math rather than beside it.
Do I pay you to work this out?
No. On a typical residential mortgage the lender pays us, not you, and running the penalty math costs you nothing whether or not you end up moving the mortgage. If a file needs alternative or private financing where a broker fee applies, we tell you the amount in writing before any application goes anywhere.
Send Josh Tagg the commitment. We will tell you what leaving actually costs.
Your mortgage commitment or renewal letter, your balance, and roughly how long is left. We will work out the charge, run the break-even test, and tell you plainly whether moving beats staying — including when the answer is to leave it alone. Free, no credit check to start, no obligation.
Or call (403) 241-3255.
Related reading: posted rate vs discounted rate, mortgage penalties and the IRD explained, prepayment privileges at Alberta’s top lenders, why fixed-mortgage penalties run higher than people expect, and refinancing a mortgage in Calgary. Everything this office handles is listed on the mortgage services page.
Published · Last updated
General information only, not financial, mortgage or legal advice. Prepayment charges are set by your mortgage contract and vary by lender, product, rate, term and timing. The figures on this page are calculated from dated lender rate sheets using the straight-line method described above; they are illustrative of the mechanism and are not a quote, a payout statement, or a commitment from any lender. Rates shown are as at the dates stated and change without notice. Only your lender can issue your binding payout figure. All financing is subject to lender approval. Mortgages for Less with INDI Mortgage.