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Lower Rate? Check the Penalty Before You Switch.
October 3, 2026 | Posted by: Craig Nickerson
When mortgage rates fall, breaking your existing mortgage to secure a lower rate can look appealing. But the penalty could outweigh the savings.
How mortgage penalties are calculated
For many closed fixed-rate mortgages, the prepayment charge is the greater of three months' interest or an interest rate differential (IRD). Closed variable-rate mortgages commonly carry a three-month interest charge, subject to the contract.
An IRD considers the gap between rates using your lender's formula and the time remaining in your term. If the comparison rate falls, that penalty can increase.
Lenders calculate penalties differently, so two mortgages with similar rates can have very different exit costs.
Before you sell, refinance or switch mid-term
• Request a current penalty quote from your lender.
• Include legal, discharge and setup costs.
• Compare the savings over the remaining term.
• Review portability or other options your lender permits.
Choosing a new mortgage?
Understand its penalty formula before signing, especially if you may move before the term ends.
Craig can help you review the numbers before you commit, whether you're considering a refinance or planning ahead for your renewal.
Call or text Craig at 613-394-5810 or email craig@simpligomortgages.com.
