Penalties
Interest Rate Differential (IRD)
A penalty calculation used when you break a fixed-rate mortgage early. Often much higher than three months' interest.
The Interest Rate Differential (IRD) is the difference between your contract rate and the rate the lender could charge today on a new mortgage of similar term length, applied to your remaining principal for the rest of your term.
When you break a fixed-rate mortgage early, the lender charges the higher of three months' interest or IRD. On a 5-year fixed taken when rates were higher than today's, IRD can run into tens of thousands of dollars. A Lenders typically use a posted-rate calculation (which produces a larger penalty); some monoline lenders use a discounted-rate calculation (which is smaller).
Always ask your agent for a sample IRD calculation before signing — it's the single most expensive surprise in Canadian mortgage breakage.