Life doesn’t wait for your mortgage term to end. You might be moving, needing more money, or watching rates fall well below what you locked in. A closed mortgage gives you four main ways out before maturity, and the right one depends on two things: whether you’re moving, and whether today’s rates are above or below your current rate.
The four options
Porting
A portable mortgage lets you take your existing rate, terms and conditions to a new home when you sell. You avoid the prepayment penalty because the mortgage isn’t broken. Typical conditions, which vary by lender:
- You usually have to re-qualify for the new mortgage, including the new property.
- The sale and purchase must close within a window your lender sets.
- If you need more money, the extra is usually lent at a current rate and blended with your existing rate (see blend-to-term below).
- If the new home needs a smaller mortgage, you may pay a penalty on the part you repay.
If your mortgage is insured, the default insurance can often be ported too, which can reduce or avoid a new premium. Ask your lender.
Blend-and-extend
You stay with your lender and start a new term early. Instead of a penalty, the lender blends your old rate with the rate for the new term. You don’t pay a prepayment penalty, though administrative fees may apply. This is usually used when rates have fallen and you’re not moving, or combined with porting when you are.
The Financial Consumer Agency of Canada illustrates the blend as a time-weighted average: the old rate for the months left in your term, and the new rate for the rest of the new term.
Blended rate ≈ (old rate × months left + new rate × extra months) ÷ months in new term
Blend-to-term
Some lenders offer this when you port and need extra money. The new money is lent at the current rate for the time left in your term, and the two amounts are blended by size. Your maturity date stays the same.
Blended rate ≈ (old balance × old rate + new money × new rate) ÷ total balance
Breaking
You pay off the mortgage and pay a prepayment penalty: usually the greater of three months’ interest or the interest rate differential (IRD). You may also pay appraisal, administration, reinvestment or discharge fees, and you may have to repay cash-back you received. In return you’re completely free to choose any lender, rate and term. Read how prepayment penalties work for the IRD details.
Worked example
Priya and Tom have a $450,000 balance on a 5-year fixed mortgage at 5.49%, with 24 months left in the term and 22 years left on the amortization. Their payment is $2,923.69 a month. Today their lender offers 4.29% for 2 years and 3.99% for 5 years. If they break, the penalty is the IRD: $450,000 × (5.49% − 4.29%) × 2 years = $10,800, higher than three months’ interest ($6,176).
Case 1: staying put, rates have fallen
| Blend-and-extend | Break and take 3.99% | |
|---|---|---|
| New rate | 4.59% for 5 years | 3.99% for 5 years |
| Monthly payment | $2,699.84 | $2,555.49 |
| Interest over 5 years | $95,113 | $82,365 |
| Penalty | $0 (fees may apply) | $10,800 |
The blended rate is (5.49% × 24 + 3.99% × 36) ÷ 60 = 4.59%. Breaking saves $12,748 of interest over five years but costs $10,800 up front, so it comes out only about $1,950 ahead before legal, discharge and other fees. Once those are counted, it’s close to a tie, and the blend-and-extend is much simpler. If their lender calculated the IRD with posted rates, the penalty would likely be higher and the blend would clearly win.
Case 2: moving, need $600,000
Now they’re buying a bigger home and need $600,000, or $150,000 more.
| Port and blend-to-term | Break and take 3.99% | |
|---|---|---|
| Rate | 5.19% for the 24 months left | 3.99% for 5 years |
| Monthly payment (22 years) | $3,797.49 | $3,407.32 |
| Interest over the next 24 months | $60,118 | $46,154 |
| Penalty | $0 | $10,800 |
The ported rate is ($450,000 × 5.49% + $150,000 × 4.29%) ÷ $600,000 = 5.19%. Breaking saves $13,964 of interest over the two years and locks in 3.99% for five years instead of two, against a $10,800 penalty. Here breaking is likely the better deal, by roughly $3,000 before fees, plus a longer low rate. A blend-and-extend on the ported mortgage would also be worth asking for.
If rates had risen instead
Reverse the market: say today’s rates were 6.50% and their rate was 5.49%. The IRD would be zero, so breaking would cost three months’ interest, but they would lose a rate well below market. Porting keeps the 5.49% on the $450,000 and only the new $150,000 is at today’s rate. When your rate is below today’s rates, porting almost always wins.
Which option wins
| Situation | Usually best |
|---|---|
| Moving, your rate is below today’s rates | Port |
| Moving, your rate is above today’s rates, small penalty | Break and shop around |
| Moving, need more money | Port with blend-to-term or blend-and-extend, compared with breaking |
| Not moving, rates have fallen, large IRD | Blend-and-extend, or wait for maturity |
| Not moving, rates have fallen, small penalty or near maturity | Break, or renew early with your lender |
| Selling with no new purchase | Break, timing the sale as close to maturity as you can |
Before you decide
- Ask your lender for the exact penalty in writing, and how they calculate it. Check it against the penalty calculator.
- Ask for the blended rate they’d offer, and which method they use. Lenders’ formulas vary.
- Get the porting conditions: closing window, re-qualification and how extra money is priced.
- Compare total cost over the same period: penalty plus fees plus interest, not the rate alone.
- If your term ends within a few months, compare everything with simply waiting. See the renewal guide and the renewal calculator.
Sources: FCAC, breaking your mortgage contract (blend-and-extend example); FCAC, prepayment penalties and porting; CMHC, portability of mortgage loan insurance. Example figures calculated with this site’s engine; your lender’s numbers will differ.