Break vs Wait: A Numbered Comparative Analysis

Whether to break your mortgage now or wait for the term's maturity is one of the most common financial dilemmas among Quebec homeowners. The answer cannot be based on intuition or generic advice — it requires a personalized numerical analysis that considers your balance, current rate, available rates, penalty type, and all associated fees. This capsule provides you with the analytical framework and concrete examples needed to make an informed decision, whether you have a fixed or variable rate, or are with a major bank or a monoline lender.

The Costs of Early Termination

Breaking a mortgage in Quebec involves several cost categories that must be precisely quantified. The breakage penalty is the largest item and varies considerably depending on the rate type and lender. For a variable rate, the penalty is almost always three months' interest: on a $350,000 balance at 5.5%, this amounts to approximately $4,812. For a fixed rate, the interest rate differential (IRD) calculation can produce a substantially higher penalty — often between $8,000 and $25,000 depending on the spread between your rate and the lender's current rates, multiplied by the balance and remaining months. Legal fees for the new mortgage range from $1,200 to $2,500, including notary fees, registration fees at the Quebec Land Registry, and title searches. Property appraisal fees range from $350 to $500, while discharge fees for the existing mortgage cost between $250 and $350.

Comparative Table: Three Typical Scenarios

• Scenario A — Variable rate, significant spread: Balance $300,000, current variable rate 6.2%, new fixed rate 4.5%, 42 months remaining. 3-month penalty = $4,650. Total costs = $6,900. Monthly savings = $310. Break-even = 22 months. Net gain over 42 months = $6,120. Verdict: advantageous, proceed with break.
• Scenario B — Fixed rate, major bank: Balance $400,000, current fixed rate 5.5%, new fixed rate 4.5%, 30 months remaining. IRD penalty (posted rate) = $16,500. Total costs = $19,200. Monthly savings = $280. Break-even = 69 months. Net gain over 30 months = -$10,800. Verdict: unfavourable, wait for maturity.
• Scenario C — Fixed rate, monoline lender: Balance $400,000, current fixed rate 5.5%, new fixed rate 4.5%, 30 months remaining. IRD penalty (contractual rate) = $10,000. Total costs = $12,700. Monthly savings = $280. Break-even = 45 months. Net gain over 30 months = -$4,300. Verdict: marginal, consider prepayment privileges as an alternative.

Financial Advantages of Waiting

Waiting for your term maturity offers several financial advantages that are often underestimated. First, you completely avoid the breakage penalty and all associated fees, which often represents $7,000 to $25,000 in immédiate savings. Second, you retain the option to freely shop your rate with all market lenders 120 days before maturity, maximizing your negotiating power. Third, if rates continue to decline during the waiting period, you will benefit from an even better rate at renewal. Fourth, you can use your prepayment privileges (10% to 20% of the original amount per year) to reduce your balance without penalty, thereby decreasing your exposure to the current rate. Finally, waiting preserves your relationship with your current lender, which can facilitate renewal negotiations and provide access to preferential retention rates.

Decision Factors Beyond the Numbers

The decision is not based solely on numbers. Your personal situation plays a determining role. If you plan to sell within the next two years, neither breaking nor waiting may be optimal — portability could be the best option. If your employment is unstable, maintaining your current mortgage may be more prudent, as new financing requires passing OSFI's B-20 stress test. If you have high-interest debt, breaking with consolidation can be advantageous even with a significant penalty. If your spouse is planning parental leave, refinancing now with a lower rate could reduce financial pressure during that period. Each situation is unique and deserves the personalized analysis of an AMF-certified mortgage broker who has access to the actual conditions of over 30 lenders.

Retention rate

A preferential rate offered by a lender to existing clients at renewal time to incentivize them to stay rather than transfer their mortgage to a competitor. Retention rates are generally lower than posted rates but may be higher than the best market rates. A mortgage broker can obtain competing offers to force your lender to improve their retention rate.