Definition
A mortgage break occurs when a borrower terminates a closed mortgage before term maturity. The most common reasons: property sale, separation/divorce, opportunistic refinancing (rates drop significantly), or urgent relocation.
The penalty for breaking equals the greater of three months' interest and the Interest Rate Differential (IRD). For SCHL-insured mortgages, the IRD method is regulated (OSFI B-20) using the Bank of Canada rate as reference, typically yielding a reasonable penalty. For conventional chartered bank mortgages, the proprietary IRD can easily reach $10,000 to $30,000 on a $300,000 balance.
Before proceeding with a break, always request a written penalty simulation from your lender. Then compare the anticipated savings on the new rate against the penalty cost over the remaining term. An AMF broker can run this calculation for you.