Penalty Calculations by Lender (2025): RBC vs TD vs Scotiabank vs BMO vs CIBC

If you break your mortgage before the term ends—whether you’re selling, refinancing, or switching lenders—you’ll face a penalty. This can cost anywhere from a few thousand dollars to tens of thousands, depending on your lender and how they calculate it.

The big banks (RBC, TD, Scotiabank, BMO, and CIBC) all use the same general methods:

• 3 months’ interest (common on variable mortgages)
• Interest Rate Differential (IRD) (common on fixed mortgages)

But the details vary, and those differences can dramatically affect how much you pay.

---

RBC (Royal Bank of Canada)

• Variable-Rate Mortgages: Penalty is 3 months’ interest on the outstanding balance.
• Fixed-Rate Mortgages: Penalty is the greater of:
  • 3 months’ interest, or
  • IRD, based on the difference between your contract rate and RBC’s posted rates for the remaining term.

Impact: RBC’s use of posted rates can inflate the penalty, since posted rates are higher than discounted rates offered to customers.

Example: If you locked in a 5-year fixed at 2.5% but RBC’s posted 3-year rate is 3.9%, the “difference” used in the IRD may be exaggerated, leading to a larger penalty.

---

TD (Toronto-Dominion Bank)

• Variable-Rate Mortgages: 3 months’ interest.
• Fixed-Rate Mortgages: The greater of 3 months’ interest or IRD.
• IRD Method: TD uses its current posted rates minus your contract rate.

Trap: Like RBC, TD’s reliance on posted rates means IRD penalties can be very high. However, TD sometimes uses “comparison rates” based on the remaining term, which can soften the penalty depending on timing.

Example: A borrower breaking a 5-year fixed after 3 years may be compared against TD’s 2-year posted rate—not the discounted market rate—raising the penalty.

---

Scotiabank

• Variable-Rate Mortgages: 3 months’ interest.
• Fixed-Rate Mortgages: Greater of 3 months’ interest or IRD.
• IRD Method: Based on the difference between your contract rate and Scotiabank’s posted rate for the closest term.

Key Difference: Scotiabank’s IRD formula is less punitive than some peers if your discount was small, but can still be hefty if your discount was large.

Example: If you took a 5-year fixed at 2.2% when the posted rate was 4.9%, the big gap means your IRD will be substantial if you break early.

---

BMO (Bank of Montreal)

• Variable-Rate Mortgages: 3 months’ interest.
• Fixed-Rate Mortgages: Greater of 3 months’ interest or IRD.
• IRD Method: Uses BMO’s posted rate differential approach, comparing your contract rate to posted rates for the remaining term.

Nuance: BMO’s calculations often resemble RBC’s and TD’s, but depending on your original discount, penalties may come out slightly lower than RBC’s inflated versions.

Example: A $350,000 mortgage broken mid-term could trigger a penalty of $10,000–$15,000, depending on posted rate spreads.

---

CIBC

• Variable-Rate Mortgages: 3 months’ interest.
• Fixed-Rate Mortgages: Greater of 3 months’ interest or IRD.
• IRD Method: CIBC calculates IRD using its advertised rates at the time you signed, compared with current posted rates for the remaining term.

Borrower Experience: CIBC’s IRD is often seen as less aggressive than RBC/TD, but still higher than credit unions or non-bank lenders, which tend to use discounted rates in calculations.

Example: If you signed at 2.9% when the posted rate was 4.5%, CIBC will still use the posted differential—leading to penalties larger than you may expect.

---

How Penalties Compare Across Banks

---

Strategies to Reduce Penalties

1. Go Variable if Flexible: Variable mortgages usually only carry the 3-month interest penalty.
2. Choose Lenders Carefully: Some credit unions and non-bank lenders calculate IRD using discounted rates, making them fairer.
3. Time It Right: Break closer to the end of your term when penalties are smaller.
4. Prepay Before Breaking: Use lump-sum privileges to reduce your balance before breaking.
5. Negotiate: Some banks may reduce or restructure penalties if you’re staying with them for a new mortgage.

---

Conclusion: Know Before You Sign

Mortgage penalties in Canada can feel like a trap—but they don’t have to be a surprise. While all five big banks (RBC, TD, Scotiabank, BMO, and CIBC) use similar formulas, their reliance on posted rates often leads to higher-than-expected penalties for fixed mortgages.

If you think you might sell or refinance before your term ends, consider a variable mortgage or work with a lender that uses more transparent calculations.

The key is planning ahead: by understanding how each lender calculates penalties, you can avoid costly mistakes and protect your equity.

---

---