Refinance break-even
Breaking a mortgage early costs either three months of interest or an interest-rate differential — and the two figures can differ by a factor of ten. This compares the penalty and fees against the payment you would actually save.
- IRD vs three-month penalty
- Break-even month
- Cumulative savings curve
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The two penalty formulas
| Three months of interest5.34% on $420,000 for a quarter | $5,607 |
|---|---|
| Interest rate differential(5.34% − 2.89%) × $420,000 × 26/12 | $22,295 |
| What you would be charged | $22,295 |
The IRD calculation is the one to check in your contract. Some lenders discount your original rate by the discount you received at origination before running the subtraction, which materially increases the penalty.
Cumulative position after switching
Lifetime interest, three ways
The three-month penalty is the balance times your annual rate divided by four. The interest rate differential is the gap between your rate and the lender’s current rate for a comparable remaining term, applied to the balance for the months left.
Break-even is the upfront cost divided by the monthly saving. It ignores the interest you would earn on the money instead, which matters little at typical deposit rates and typical break-even periods of under two years.
The third scenario keeps your existing payment after refinancing, so the entire rate saving goes to principal. It almost always produces the lowest lifetime interest.
These results are illustrative estimates based on published 2026 rates and typical lender rules. They are not financial, tax, or legal advice, and they are not a mortgage or credit approval. See the methodology and disclaimer.
Semi-annual compounding, CMHC premium, and the equity you build each year.
The 65% revolving and 80% combined loan-to-value ceilings, applied to your home.
Back-solve the price that clears GDS and TDS at the stress-test rate.
Payments, total cost, and whether consolidation actually helps.