Should I Break My Calgary Mortgage?
Quick Answer
Breaking your mortgage makes sense when the total interest saved over the remaining amortization exceeds your penalty plus costs. For variable rates, penalties are just 3 months of interest. For fixed rates, penalties can be substantial — the greater of 3-month interest or IRD.
Calculator
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Yes, break it. You save $58,067 net after the $5,216 penalty. Break-even in 24 months.
Break Penalty
$5,216
💡Pro Tip
Ask your lender about porting your mortgage if you're buying a new home — this lets you keep your rate and avoid the penalty.
How It Works
Variable rate penalties are always 3 months of interest — straightforward and usually manageable.
Fixed rate penalties use the Interest Rate Differential (IRD), which compares your contract rate to the lender's current posted rate for your remaining term. The penalty is the greater of 3-month interest or IRD — and IRD can be very expensive.
Alternatives to breaking:
- Blend-and-extend: Your current lender blends your old rate with a new rate and extends the term. No penalty, but the blended rate may not be the best available.
- Port: If you're buying a new home, you may be able to transfer your existing mortgage to the new property.
- Wait for renewal: At renewal, you can switch lenders with zero penalty.
Real Calgary Scenarios
Variable → Fixed
5.79% → 4.29%
$5,066
penalty
Net saves $68,786
Fixed — 36 months left
5.49% → 4.29%
$5,490
penalty
Net saves $61,123
Fixed — 12 months left
5.49% → 4.29%
$5,216
penalty
Net saves $58,067
Frequently Asked Questions
How is the penalty for breaking a fixed mortgage calculated?
The penalty is the greater of 3 months interest on your balance, or the Interest Rate Differential (IRD). IRD = (your contract rate − lender's current posted rate for remaining term) × balance × months remaining ÷ 12. Big banks often use inflated posted rates, making IRD penalties very high.
What's the penalty for breaking a variable mortgage?
Always 3 months of interest — much simpler and cheaper. On a $400,000 balance at 5.5%, that's about $5,500.
Can I avoid the penalty by selling my home?
No — if you sell before your term ends, you still pay the penalty. It's deducted from your sale proceeds. However, if you're buying another home, you may be able to port your mortgage.
Is it cheaper to break at a credit union vs a big bank?
Often yes. Credit unions typically use a fairer IRD calculation (posted rate minus actual rate, not the discount rate). This can make penalties significantly lower than at big banks.
Should I wait until renewal instead?
If your renewal is within 6-12 months, it's almost always better to wait. At renewal, you can switch lenders with zero penalty. Use this time to shop for the best rate.
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