If you’re staring at your mortgage statement in 2025 and wondering why you’re paying 6% while rates have dropped to 4.25%, you’re not alone. Thousands of Canadians locked into 5-year fixed-rate mortgages during the pandemic boom are now asking the same question: Should I break my mortgage early to get a better rate?
Short answer? It depends. Long answer? Let’s break it down.
The Big Tease: Lower Rates Are Back
After peaking in 2023, interest rates have slowly started dipping. The Bank of Canada made its first cut earlier this year, and while it’s not a freefall, the shift has given hope to borrowers still paying pandemic-era rates. But for homeowners locked into a 5-year fixed deal — often between 4.5% to 6% — the idea of refinancing at today’s rates (around 4.25%, and possibly dropping further) is incredibly tempting.
But there’s a catch — a potentially very expensive one.
The Hidden Monster: Prepayment Penalties
Most Canadians with fixed mortgages face what’s called an Interest Rate Differential (IRD) penalty. Translation: if you break your contract, your lender charges you for the “interest difference” they’ll lose out on — and that number can climb into the tens of thousands.
Here’s a rough breakdown:
- You still owe: $380,000
- Current rate: 5.75%
- Remaining term: 2.5 years
- New market rate: 4.25%
Your lender might ding you with a $12,000+ IRD penalty just to break your contract. And that’s before refinancing costs.
So Is It Ever Worth It?
It can be. If:
- You’re staying in the home for the long haul
- The new rate offers enough monthly savings to offset the penalty in 2-3 years
- You roll the penalty into the new mortgage
For example:
If switching drops your payments by $450/month, you’ll save $10,800 over 2 years — nearly covering a $12k penalty.
But if you’re selling the home in the next couple years, the math usually doesn’t work.
The Undercover Option: Blend & Extend
Some lenders let you skip the full penalty by blending your old rate with the new one — kind of like averaging them out. It’s not always the cheapest option, but it can reduce shock.
Always ask your lender about this first.
Gotchas to Watch Out For:
- Penalties are not negotiable. Lenders use formulas, not feelings.
- Refinancing adds fees. Legal, appraisal, and admin fees can add up to $2,000+.
- CMHC rules apply again. If your new mortgage is over 80% of the home’s value, you may need insurance.
Real Talk: Who’s Actually Doing It?
According to mortgage brokers in Ontario and B.C., there’s been a surge in break-and-refinance requests since April. Most come from homeowners who bought in 2021-22 and now feel trapped in high-rate deals.
Reddit threads and Facebook mortgage groups are buzzing with real stories:
“Broke my 5.65% with Scotiabank. Took a $10k hit but saving $500/month. Worth it for me.”
“Was gonna break mine until I saw the $14,700 penalty. Nope. Just gonna wait.”
“Our penalty was $9,800 but we’re refinancing and pulling equity for renos too, so win-win.”
Final Word: Run the Numbers
Before you even think about calling your lender, plug your numbers into a mortgage break penalty calculator (Ratehub, WOWA, or your bank’s site). Compare:
- Total cost to break
- New rate savings over remaining term
- Your long-term plans
Sometimes it’s worth the pain. Other times? Better to wait it out.
In 2025, Canadian mortgage math is brutal — but not impossible. Just don’t let short-term rate envy lead to long-term regret.
Marc has been involved in the Stock Market Media Industry for the last +5 years. After obtaining a college degree in engineering in France, he moved to Canada, where he created Money,eh?, a personal finance website.
