Switching at renewal usually carries no prepayment penalty, only modest costs. Switching mid-term can trigger a penalty of the higher of three months' interest or an interest rate differential, so compare it with your savings and get the figure in writing.
The two questions people type into Google about switching mortgage lenders are usually the same: will I be charged a penalty, and what will it cost me? The honest answer to both is that it depends on when you switch. At the end of your term the penalty is generally zero and the costs are modest. In the middle of a term the penalty can be large enough to cancel out the savings. This guide explains the difference, how the penalty is calculated, and how to tell whether a switch is worth it. It builds on our guide to switching mortgage lenders at renewal.
Switching at renewal usually carries no prepayment penalty, only modest costs such as an appraisal, legal and discharge fees, and many lenders offer cash back to offset them. Switching in the middle of a term can trigger a penalty equal to the higher of three months' interest or an interest rate differential, which can run into thousands of dollars. Always get the penalty figure in writing before you decide.
At the end of the term your mortgage contract has run its course. The Financial Consumer Agency of Canada says you do not have to renew with the same lender, and waiting until the end of the term lets you pay off a lump sum without a prepayment penalty, according to its guide to prepayment penalties. That is why renewal is the cheapest moment to move your mortgage, and why we suggest starting to shop a few months before it arrives.
Moving your mortgage to another lender before the term ends is treated as breaking the contract. The FCAC lists breaking your mortgage contract and transferring your mortgage to another lender before the end of the term among the situations that can lead to a prepayment charge. This is the situation behind searches like switching mortgage lenders before term, and it is where the real money is at stake.
According to the FCAC, a prepayment penalty is usually the higher of two amounts: three months' interest on the balance you still owe, or the interest rate differential (IRD). The lender usually uses the IRD when your current rate is higher than the lender's current rate and you signed the contract less than five years ago. The IRD works out the remaining interest on your term at two rates and takes the difference. Your lender may also charge an administration fee on top.
The FCAC gives an example. On a $200,000 balance at 6% with 36 months left, against a 4% rate, three months' interest comes to about $3,000, while the IRD comes to about $12,000. The penalty is the higher figure, so it would be about $12,000, plus any administration fee. Your own numbers will differ, because each lender has its own formula and rates, and the formula is written in your mortgage contract.
Even with no penalty, a switch can carry smaller costs: a new appraisal, legal fees and the fee to discharge the old mortgage from title and register the new one. The amounts vary by lender and by file. Many lenders offer cash back or cover some of these costs to attract switches, which can offset some or all of them, so ask directly. For a straight switch at renewal between federally regulated lenders, OSFI's guidance allows the balance to rise by as much as $3,000 to cover transaction costs such as penalties or fees, without triggering the stress test.
Compare two numbers: the total cost of switching, which means the penalty plus the other costs, and the interest you would save over the rest of the term at the new rate. If the savings are larger, a switch can make sense. If the cost is larger, waiting for renewal is usually better. Here is a simple illustration with made-up round numbers: a switch that saves $150 a month over the 20 months left on your term saves $3,000. If the penalty and other costs total $6,000, you would lose money by switching now. If they total $1,500, you come out ahead by about $1,500. Our Switch & Save calculator runs this comparison on your own figures.
The FCAC suggests several routes: use your prepayment privileges each year, so the balance you owe, and therefore any later penalty, is lower; make a lump-sum prepayment before you break the mortgage, though some lenders limit prepayments close to the date you break it; and ask whether you can port your mortgage, which means keeping your current rate and terms when you move to a new home, so you avoid breaking the contract. If you are financially stressed, the FCAC says lenders should consider relief options, including waiving penalties in some cases.
Under the FCAC's rights guidance, your lender must tell you how it calculates the prepayment charge, and lenders following the industry code of conduct provide ways to estimate it. Ask for the figure in writing before you decide, and ask the new lender what it will cover. A broker can compare offers and run the cost of switching against the savings, which is part of the Switch & Save refinance service.
Switching lenders at renewal is usually low-cost, and switching mid-term can be expensive, so timing is the biggest factor. Know your renewal date, ask your current lender for the penalty figure early, and compare it with the savings on offer. If you would like help working out whether a switch pays off, contact us and we will run the numbers with you. This article is general information as of October 2026, not legal, tax or mortgage advice, and your mortgage contract and lender terms govern.
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