IRD (Interest Rate Differential) is the penalty most fixed-rate mortgages charge if you break the term early. Understanding it is essential because it's often the biggest number in the refinance conversation.
What IRD Is
In plain terms: the lender is losing future interest if you break. IRD is the lender's attempt to recover that loss.
The basic formula is:
IRD = (Your Rate - Comparison Rate) x Balance x Years Remaining
The comparison rate is what makes this tricky. Different lenders use different comparison rates:
- Posted rate at signing minus today's posted rate for the closest remaining term.
- Discounted rate at signing minus today's rate (less common, broker-friendly).
- Your contract rate minus a current posted rate (most common at big banks).
The comparison rate choice can swing the penalty by thousands of dollars.
IRD Vs 3-Month Interest
Every fixed-rate mortgage in Canada has two possible penalties:
- IRD - the differential math above.
- 3 months' interest - exactly what it sounds like.
The lender charges whichever is higher. For most fixed mortgages with rates much lower than current rates, IRD wins. For mortgages near the end of their term, 3-month interest often wins.
We tell you which one applies on every candidate.
How We Estimate It
For every lender in our list, we have lender-specific penalty math sourced from that lender's publicly shared disclosures. That means we don't use one generic formula - we mirror what each lender actually does.
Even so, our number is an estimate:
- We work from your current rate, balance, months remaining, and the lender's published rate history.
- The lender's actual quote depends on their internal comparison rate on the day of payout, which can drift slightly from public data.
For the most accurate estimate, use the advanced options in the penalty calculator - closing date and discount rate let us narrow in on the exact historical posted rate instead of falling back to a monthly average.
What To Do Next
- Run a one-off calc: Running A Penalty Calculation.
- See how lender-specific math works: Lender-Specific Penalty Math.
- Refine the estimate: Advanced Options In The Penalty Calculator.