All mortgage contracts have a penalty for prepaying the entirety of the mortgage early. For people seduced by some of the extremely low rate mortgages available these can be extremely high, up to 3% per annum of the remaining balance for the remaining term. The standard language for fixed rate mortgages is the higher of 3 months interest or the interest rate differential. The interest rate differential (IRD) is simply the difference between your current rate and the rate being charged on the product with a similar term to the time remaining in your term.
So IRD x remaining time x remaining balance = the penalty.
The surprise comes in which rates the bank uses to calculate the difference, whether they use the posted rate or the actual rate. David Larock’s blog post from July, 2020 is an excellent discussion of what borrowers should know ahead of time especially as the majority of mortgages are terminated prior to the end of their term. You can read read David’s blog here :