Mortgage Prepayment Penalty Calculator — Early Payoff Cost
Breaking a fixed-rate mortgage before the term ends usually triggers a penalty. Enter your remaining balance, your rate, the lender's current rate and the time left to estimate the penalty under the IRD or 3-months-interest method.
Penalty method
%
%
3% of remaining balance
257,500
total to clearPrincipal
97.1%
Penalty
2.9%
- 1
Three-month interest floor
250,000 × 5.5% ÷ 100 ÷ 12 × 3 = 3,437.5The penalty cannot be less than three months of interest. - 2
Rate differential
5.5% − 4% = 1.5 - 3
IRD amount
250,000 × 0.015 × 24 ÷ 12 = 7,500 - 4
Estimated penalty (max of IRD and floor)
max(7,500, 3,437.5) = 7,500
How does this calculator work?
IRD = Balance × (your rate − lender's current rate) × remaining years, with a minimum of 3-months interest. When rates have dropped, the IRD can be costly. Use this as a guide; always confirm the exact figure with your lender before breaking a mortgage.
Formula
How this is calculated
Most fixed-rate mortgages impose a prepayment charge if you pay off the loan before the term expires. The two most common methods are the Interest Rate Differential (IRD) and the three-months-interest penalty.
The IRD compensates the lender for the interest it will lose because it now has to lend that money at a lower rate. The formula is: Balance × (your contract rate − the lender's current posted rate for the remaining term) × (months left ÷ 12). Many lenders set a floor at the three-months-interest amount, so the IRD applies only when it produces a larger number — which it typically does when rates have fallen significantly since you took out the loan.
The three-months-interest penalty is simpler: Balance × (contract rate ÷ 12) × 3. It is the standard penalty for variable-rate mortgages and acts as the floor for fixed-rate IRD penalties. Lender calculations vary — some use the posted rate rather than your discounted rate for the "current" side, which can dramatically inflate the IRD. Always request the exact calculation from your lender before breaking a mortgage. Figures here are estimates based on 2025 conventions and are for guidance only.
Frequently asked questions
The IRD exceeds three months interest when rates have fallen substantially since you got your mortgage. If you locked in at 5.5% and the lender now offers 4%, the rate gap is large and the IRD can be many thousands of dollars — especially on a large balance with a long remaining term.
If the current market rate is the same as or higher than your contract rate, the IRD formula produces zero or a negative number, so the lender falls back to the three-months-interest minimum. Some lenders waive penalties if you are porting the mortgage to a new property.
Potentially, if the interest you save at the new lower rate over the remaining term exceeds the penalty. Use the mortgage comparison calculator alongside this one: compare the total interest at your current rate vs. the new rate, then subtract the penalty cost to see if you come out ahead.
Also known as
TG we-Calculate Editorial Team. (2026). Mortgage Prepayment Penalty Calculator — Early Payoff Cost [Online calculator]. TG we-Calculate. https://we-calculate.com/calculator/mortgage-penalty-calculator
TG we-Calculate Editorial Team. "Mortgage Prepayment Penalty Calculator — Early Payoff Cost." TG we-Calculate. 2026. https://we-calculate.com/calculator/mortgage-penalty-calculator.
TG we-Calculate Editorial Team, "Mortgage Prepayment Penalty Calculator — Early Payoff Cost," TG we-Calculate, 2026. [Online]. Available: https://we-calculate.com/calculator/mortgage-penalty-calculator
@misc{wecalculate_mortgage_penalty_calculator, title = {Mortgage Prepayment Penalty Calculator — Early Payoff Cost}, author = {{TG we-Calculate Editorial Team}}, howpublished = {\url{https://we-calculate.com/calculator/mortgage-penalty-calculator}}, year = {2026}, note = {TG we-Calculate} }
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