Should You Break Your Mortgage to Get a Lower Rate?

Rates have dropped and you're tempted to break your current mortgage to lock in something better. It can be a smart move — but the prepayment penalty can wipe out the savings if you don't run the numbers carefully. Here's how to decide whether breaking your mortgage to get a lower rate is actually worth it.

Key takeaways

• Breaking a closed mortgage usually triggers a prepayment penalty.
• Fixed-rate penalties are often the greater of three months' interest or the IRD; variable is usually three months' interest.
• Break only if your interest savings clearly exceed the penalty plus any switching costs.
• Sometimes porting or a blend-and-extend is a better alternative than breaking.
• HOMEH gives eligible buyers the industry's highest Cashback Rebate. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting.

Why people break their mortgage

The most common reason is to capture a lower interest rate when rates have fallen since you signed. Others break to access equity, consolidate debt, or because they're moving and can't or don't want to port. Whatever the reason, breaking a closed mortgage almost always costs a penalty.

Before deciding, make sure you understand the basics in our pillar guide on how mortgages work in Canada and the difference between open vs closed mortgages — open mortgages can be broken without penalty.

How the penalty is calculated

The penalty depends on your mortgage type. For a variable-rate mortgage, it's usually three months' interest. For a fixed-rate mortgage, it's typically the greater of three months' interest or the Interest Rate Differential (IRD) — and the IRD can be large, especially early in your term.

Get the full mechanics — and how lenders compute the IRD — in mortgage penalties explained. Always ask your lender for an exact penalty quote before you commit.

The break-even math

The decision comes down to one comparison: will the interest you save by switching to a lower rate exceed the penalty plus any legal, discharge, and re-registration costs? If yes, breaking can pay off; if no, you're better off waiting until renewal.

Run your real figures with the refinance calculator and compare scenarios on the mortgage calculator. If you're also moving, weigh this against refinancing and your renewal timing.

Alternatives to breaking

Breaking isn't the only option. If you're buying a new home, you may be able to carry your existing rate over — see what is mortgage portability. A blend-and-extend lets you mix your old rate with a new one without a full break. And if your term is nearly up, simply waiting for renewal avoids the penalty entirely.

Get the penalty quote in writing

Penalty estimates online are just estimates. Always request an official payout/penalty quote from your lender for a specific date before you make any decision — the IRD can change with current rates.

More savings with HOMEH

However you handle your mortgage, eligible HOMEH buyers receive the industry's highest Cashback Rebate on their next move. Sellers list for 1%, or free when they also buy with HOMEH within 6 months, or $395 + HST with a Mere Posting. Estimate yours with the cashback calculator.