1. What is IRD Calculation?

The Interest Rate Differential (IRD) is a method used by lenders to calculate mortgage prepayment penalties. It compensates the lender for the interest they would lose if you break your mortgage early.

2. How Does the Calculator Work?

The calculator uses the IRD formula:

Where:

• Outstanding Principal — Remaining mortgage balance
• Current Rate — Your actual mortgage interest rate
• Posted Rate — Lender's current rate for similar mortgages
• Time Remaining — Years left in your mortgage term

Explanation: The penalty compensates the lender for the difference between what they're earning on your mortgage and what they could earn by lending that money to someone else at current rates.

3. Importance of Penalty Calculation

Details: Understanding potential penalties helps homeowners make informed decisions about refinancing or breaking their mortgage early.

4. Using the Calculator

Tips: Enter all values in CAD and percentages. Contact your lender for exact posted rates as they may vary.

5. Frequently Asked Questions (FAQ)

Q1: Is IRD the only way penalties are calculated?
A: No, some lenders use the greater of IRD or 3 months' interest. Check your mortgage contract.

Q2: Why do posted rates matter?
A: The larger the gap between your rate and current posted rates, the higher your penalty.

Q3: Can penalties be negotiated?
A: Sometimes, especially if you're refinancing with the same lender.

Q4: Are there penalty-free options?
A: Some mortgages allow annual prepayment privileges (usually 10-20% of principal).

Q5: How accurate is this calculator?
A: This provides an estimate. Actual penalties may include additional fees or different calculation methods.