What Happens If You Need to Break Your Mortgage Term Early?
Lisette Amalfi
March 10, 2025
Breaking your mortgage term early is more common than you might think. Whether you're moving, refinancing, or dealing with an unexpected life change, ending your mortgage contract before it expires can come with costs—but there are ways to navigate them.
As a mortgage broker with over 23 years of experience helping homeowners in Hamilton, Ancaster, and across Ontario, I’ve guided many clients through this process. My goal is to help you understand what to expect, explore ways to reduce penalties, and find the best solution for your situation.
What Does Breaking a Mortgage Term Mean?
Breaking a mortgage means ending your current mortgage contract before the agreed-upon term is up. This can involve:
- Paying Off the Balance – This is often done through selling your home or refinancing.
- Penalty Fees – Lenders typically charge a prepayment penalty, and there may be additional fees involved.
Why Might You Need to Break Your Mortgage?
In my experience, clients usually break their mortgage for one of these reasons:
- Moving to a New Home – Whether for work, family, or lifestyle changes, a home sale means closing out your current mortgage.
- Refinancing for a Better Rate – If mortgage rates drop, breaking your current mortgage to secure a lower rate could save you thousands in interest.
- Life Changes – Divorce, separation, or other financial adjustments might require a new mortgage setup.
- Debt Consolidation or Accessing Equity – Some homeowners refinance to pay off high-interest debt or fund major expenses.
What Are the Costs of Breaking a Mortgage?
1. Prepayment Penalty
The biggest cost is usually the penalty for breaking your mortgage early. The calculation depends on whether you have a fixed-rate or variable-rate mortgage.
For Fixed-Rate Mortgages:
- The penalty is either 3 months' interest or the Interest Rate Differential (IRD)—whichever is higher.
- The IRD Calculation: This takes the difference between your current rate and what the lender could charge a new borrower for your remaining term. Some lenders use posted rates, while others use discounted rates—so penalties can vary significantly.
- Key Takeaway: Fixed-rate mortgages tend to have higher penalties than variable-rate ones.
For Variable-Rate Mortgages:
- The penalty is typically just 3 months’ interest on the remaining balance.
- Example: If you owe $300,000 at 2.5% interest, your penalty would be about $1,875.
2. Other Fees to Expect
- Mortgage Discharge Fee: $200–$400 (varies by lender).
- Legal Fees: If refinancing, legal costs typically range from $800–$2,000.
- Reinvestment Fees: Some lenders charge extra if they need to reinvest the mortgage funds early.
Can You Reduce or Avoid These Penalties?
Absolutely! In many cases, we can explore options to reduce or even eliminate penalties:
✅ Porting Your Mortgage – If you're buying a new home, you might be able to transfer your existing mortgage to the new property and avoid penalties.
✅ Blending & Extending – Some lenders allow you to combine your current rate with their new rate, spreading the cost over a longer term.
✅ Timing the Break Strategically – If your term is close to ending, waiting until renewal could save you thousands.
✅ Refinancing with the Same Lender – Some lenders will reduce or waive penalties if you stay with them.
Every lender has different policies, so this is where I come in—I’ll review your mortgage details and help you determine the best course of action.
How I Can Help
If you’re considering breaking your mortgage, you don’t have to navigate this alone! Here’s how I can help:
✔️ Penalty Calculations – I’ll break down the numbers so you know exactly what to expect.
✔️ Exploring Alternatives – I’ll help you look at porting, blending, or other penalty-reducing options.
✔️ Comparing Lenders – If a switch makes sense, I’ll find you the best rates and terms to offset costs.
✔️ Negotiating for You – I work directly with lenders to see if we can lower or eliminate penalties.
Final Thoughts
Breaking a mortgage term early can feel overwhelming, but with the right approach, you may be able to reduce costs and take advantage of better opportunities. If you're thinking about breaking your mortgage, let’s chat! I’ll walk you through your options and help you find the best financial path forward.
📞 Call or text me at 905-929-1199 📧 Email me at lamalfi@tmacc.com
I’m here to help you make the best decision for your situation!