Should You Break Your Mortgage Early? (Let’s Talk Penalties, Math + Peace of Mind)

You’ve probably heard: “Don’t break your mortgage—penalties are brutal!”
But what if breaking your mortgage actually saves you money… or sanity?

Whether you're eyeing a lower rate, consolidating debt, going through a life change, or just want more flexibility, here's what you really need to know about breaking your mortgage in 2025 (with less stress and way more clarity).

What does “breaking” your mortgage mean?

It means ending your current mortgage before the end of your term (e.g. 5 years). You might be breaking to:

• Refinance at a better rate

• Consolidate debts

• Pull out equity for renovations or other big expenses

• Switch lenders for better terms

• Sell your home before the term ends

• Separate or divorce

Bottom line: it’s not just a money thing—it’s often a life thing. So let's break it down, no pun intended (okay, maybe just a little pun 😅).

Step 1: Know your penalty type

There are two main types of penalties in Canada:

💥 Fixed-rate mortgage?

You’ll usually pay the greater of:

• Three months’ interest
  or

• The Interest Rate Differential (IRD) — based on how your rate compares to current rates.

This one’s trickier (and can be steeper), so we always want to run the numbers before jumping.

🌊 Variable-rate mortgage?

Most lenders charge a simple three months’ interest. It’s more predictable and often cheaper.

Step 2: Crunch the numbers

Here’s what we look at together:

• Remaining mortgage balance

• Time left in your term

• Your current interest rate

• What rates are available today

• Cost of the penalty

• Potential savings from refinancing

Sometimes the savings from refinancing outweigh the penalty. Other times, the numbers say “not today.” Either way, we’ll make sure it’s a smart move before you sign anything.

Step 3: Look at your life (seriously)

Even if the numbers are neutral, your peace of mind matters too. Breaking might make sense if:

• Your income or expenses have changed

• You're facing relationship changes

• You're feeling house-poor and need to restructure

• You’re craving a fresh financial start

Math matters, but mental health and flexibility matter too.

Step 4: What happens after you break?

If the numbers (and timing) make sense, we:

1. Pay the penalty to your current lender

2. Set up a brand-new mortgage (hopefully with a better rate, features, or flexibility!)

3. Celebrate your financial fresh start 🎉

Common Myths (busted):

“You can’t break a mortgage.”
Totally false. You absolutely can—there’s just a cost to weigh.

“You’ll ruin your credit.”
Nope. As long as payments are made on time and you’re not defaulting, credit is unaffected.

“You lose your house.”
Not even a little bit true. You’re just trading one mortgage for another—often a better one.

👉 Thinking about your next move? Let’s chat mortgages + MLS® today.