Unsure about the cost of breaking your mortgage early? Our Mortgage Penalty Calculator helps you estimate potential fees, including the Interest Rate Differential (IRD) and 3-month interest penalty, empowering you to make informed financial decisions about refinancing or selling your home.
Formula:
Understanding Mortgage Penalty Calculation:
Your mortgage penalty is typically the greater of two common calculations:
- Three Months Interest (3MI): This is usually calculated as
3 × (Current Balance × Original Interest Rate / 12). - Interest Rate Differential (IRD): This is more complex and depends on the difference between your original mortgage rate and the lender's current posted rate for a comparable term.
The simplified formula is:
(Original Interest Rate - Lender's Current Posted Rate) × Current Balance × (Remaining Term in Years).
Where:Original Interest Rate= Your current mortgage interest rate (annualized).Lender's Current Posted Rate= The interest rate your lender would charge for a new mortgage with a term remaining equal to your original mortgage's remaining term (annualized).Current Balance= Your outstanding mortgage principal.Remaining Term in Years= The number of years left on your current mortgage term.
Our calculator will determine both values and show you the higher one, which is typically your estimated mortgage penalty.