The Penalty-Free Early Renewal Window

  • 6 months out: available with some credit unions and select lenders
  • 4 months / 120 days: standard penalty-free window at most major banks and monolines
  • 3 months / 90 days: minimum at most Canadian lenders
  • Within this window: renew without penalty, lock in a rate hold

The rate hold advantage:

Lock in a rate now. If rates rise — you keep the lower rate. If rates fall — ask your broker if you can re-lock at the new lower rate. The early window is asymmetric upside.

Breaking Your Mortgage Early — When the Math Works

If you're outside the penalty-free window but current rates are significantly lower than your contracted rate, breaking early might still make financial sense. The key is the break-even calculation:

The break-even formula:

  1. 1Get your exact break penalty from your current lender
  2. 2Calculate monthly savings at the new rate
  3. 3Penalty ÷ monthly savings = break-even months
  4. 4If break-even months < remaining term months → breaking saves money

The Blended Rate Trap

When you ask your bank about renewing early, they may offer a "blended rate" — a combination of your current rate and the new rate that sidesteps a formal penalty. It sounds like a favour. It isn't always.

A blended rate keeps you with your current lender at a rate embedded with the penalty cost. The open market may offer a better rate outright. Always get the blended rate in writing and compare it against what a broker can find.

Penalty Types — Fixed vs Variable

  • Fixed rate penalty: greater of 3 months interest or IRD (Interest Rate Differential) — can be very large
  • Variable rate penalty: always 3 months interest — predictable and usually manageable
  • Always get the exact penalty amount in writing from your lender before making any decisions