How do I compare two mortgage offers in Canada?

Compare these six factors in order of importance: (1) Total cost over the term (rate × balance × term), (2) Penalty calculation method (3 months' interest vs IRD using posted rates), (3) Prepayment privileges (how much extra you can pay annually), (4) Portability (can you transfer to a new home), (5) Mortgage charge type (conventional vs collateral), and (6) Restrictions on switching lenders at renewal. The lowest rate is not always the best deal.

Should I always pick the lowest mortgage rate?

No. A lower rate with restrictive terms can cost you more overall. For example, a 4.49% rate with a posted-rate IRD penalty, 15% prepayment privileges, and a collateral charge could cost $10,000–$20,000 more than a 4.59% rate with a 3-month interest penalty, 20% prepayment privileges, and a conventional charge — if you need to break or switch your mortgage before the term ends.

What is a collateral vs conventional mortgage charge?

A conventional charge registers your mortgage for the exact amount borrowed and can be transferred to a new lender with a simple assignment (low cost). A collateral charge registers for more than you owe (up to 125% of home value), which lets you borrow more later without re-registering — but switching lenders requires a full discharge and new registration ($1,000+ in legal fees). TD Bank and Tangerine use collateral charges by default.

How much does a 0.10% rate difference actually cost?

On a $500,000 mortgage over a 5-year term, a 0.10% rate difference equals approximately $250 per year or $1,250 over the full term. This is much less than the potential cost of a bad penalty clause ($5,000–$20,000) or restricted prepayment privileges. Rate is important, but the other terms matter more than most borrowers realize.

Mortgage Comparison Calculator Guide: How to Compare Two Mortgage Offers Side by Side

Most Canadians compare mortgages by looking at one number: the interest rate. That’s a mistake. The rate matters, but it’s only one factor — and often not the most expensive one. Penalty calculations, prepayment privileges, and mortgage charge type can cost or save you $10,000–$25,000 over the life of your mortgage.

This guide gives you a systematic framework for comparing any two mortgage offers.

The six factors that matter (in order)

Priority	Factor	Why It Matters	Potential Cost Difference
1	Total cost over term	The actual dollars you pay	$1,000–$5,000 per 0.10% difference
2	Penalty calculation	What you pay if you break the mortgage	$5,000–$20,000+ difference
3	Prepayment privileges	How much extra you can pay to save on interest	$3,000–$15,000 in interest savings
4	Portability	Whether you can transfer the mortgage to a new home	Avoids penalty entirely if you move
5	Charge type	Conventional vs collateral — affects cost of switching at renewal	$0–$1,500 to switch lenders
6	Other features	Rate hold period, assumability, lender service quality	Variable

Factor 1: total cost over term

How to calculate it

Total interest cost = Mortgage balance × Interest rate × Term length (simplified)

For a more accurate comparison, calculate the total of all payments over the term:

Component	Offer A	Offer B
Mortgage amount	$500,000	$500,000
Interest rate	4.49%	4.59%
Amortization	25 years	25 years
Term	5 years	5 years
Monthly payment	$2,740	$2,768
Total payments over 5-year term	$164,400	$166,080
Principal paid off	$60,200	$59,500
Total interest over term	$104,200	$106,580
Difference		$2,380 more

A 0.10% rate difference = $2,380 over 5 years on a $500K mortgage. That’s about $476/year or $40/month.

Rate difference cost table

Rate Difference	Cost Over 5-Year Term (on $500K)	Monthly Cost
0.05%	$1,190	$20
0.10%	$2,380	$40
0.15%	$3,570	$60
0.20%	$4,760	$79
0.25%	$5,950	$99
0.30%	$7,140	$119
0.50%	$11,900	$198

Factor 2: penalty calculation method

This is where the biggest cost differences hide. If you break your mortgage before the term ends (and 60% of Canadians do), the penalty method determines how much you pay.

The three penalty types

Penalty Type	How It’s Calculated	Typical Cost ($500K, 3 years remaining)
3 months’ interest	Balance × rate ÷ 4	$5,000–$6,500
IRD (fair — actual rate)	(Your rate − current equivalent rate) × balance × remaining months ÷ 12	$5,000–$10,000
IRD (posted rate — big bank)	(Posted rate − discount − current posted equivalent + discount) × balance × remaining months ÷ 12	$12,000–$25,000

Penalty comparison example

Scenario: $450,000 balance, 3 years remaining, original rate 4.50%, current 3-year rates have dropped by 1%.

Lender Type	Penalty Method	Estimated Penalty
Monoline (fair IRD)	IRD using actual rates	$8,100
Big bank (posted IRD)	IRD using posted rates	$16,200
Variable rate (any lender)	3 months’ interest	$5,063
Cost of choosing the wrong lender		$8,100–$11,100 more

Key question for every lender: “How do you calculate the interest rate differential penalty? Do you use posted rates or the rate I’m actually paying?”

Factor 3: prepayment privileges

Prepayment privileges let you pay down your mortgage faster without penalty. The two main types:

Privilege	How It Works
Annual lump sum	Pay a percentage of the original mortgage balance per year as a lump sum (on top of regular payments)
Payment increase	Increase your regular payment by a percentage per year

Comparing prepayment privileges

Feature	Restrictive Offer	Standard Offer	Generous Offer
Annual lump sum	10% of original balance	15% of original balance	20% of original balance
Payment increase	10% per year	15% per year	20% per year (double-up)
Max annual extra on $500K	$50,000	$75,000	$100,000

The savings potential

If you use your prepayment privileges to make extra payments:

Extra Annual Payment	Interest Saved Over 25yr Amortization ($500K, 4.5%)	Years Shaved Off
$5,000/year	$38,000	3.5 years
$10,000/year	$65,000	6 years
$20,000/year	$105,000	9 years
$50,000/year	$165,000	14 years

The difference between 10% and 20% prepayment privileges matters enormously if you plan to make extra payments.

Factor 4: portability

Feature	Portable Mortgage	Non-Portable Mortgage
Moving to new home	Transfer your mortgage to the new property	Must break the mortgage and pay penalty
Cost of moving	$0 penalty (legal fees still apply)	$5,000–$25,000 penalty
How it works	Lender re-registers the mortgage on the new property	Must get a new mortgage entirely
Limitations	New property must qualify; must close within 30–90 days of sale	N/A
Increase amount?	Many lenders allow a “port and increase” (blend current + new rate for additional amount)	N/A

When portability matters

Scenario	Portable Value
Planning to move within 3 years	High — could save $10,000+ in penalties
Rate is significantly below current market	Very high — you keep the lower rate
Rate is at or above market	Low — you’d want to renegotiate anyway
Staying in the home for the full term	None — portability is irrelevant

Factor 5: charge type

Feature	Conventional Charge	Collateral Charge
Registered for	Exact mortgage amount	Up to 125% of home value
Switching lenders at renewal	Simple assignment (often free or <$300)	Full discharge + new registration ($800–$1,500+)
Re-borrowing without refinancing	Not possible — must refinance	Can access more credit (HELOC, increase) without re-registering
Who uses it	Most monoline lenders, credit unions	TD Bank, Tangerine, National Bank (default), some others
Best for	Borrowers who want flexibility to switch lenders	Borrowers who want easy access to additional credit

The switching cost difference

At Renewal	Conventional Charge	Collateral Charge
Stay with current lender	$0	$0
Switch to new lender	$200–$400 (assignment)	$800–$1,500 (discharge + new registration)
Net difference		$400–$1,100 more

This cost matters every 5 years for the life of your mortgage. Over 25 years, that’s 4 potential switches — up to $4,400–$6,000 more in legal fees with collateral charges.

The comparison worksheet

Use this framework to compare any two offers:

Side-by-side template

Factor	Offer A	Offer B	Winner
Lender
Rate type (fixed/variable)
Interest rate
Term
Monthly payment
Total interest over term
Penalty method	3-month interest / Fair IRD / Posted IRD
Estimated penalty (if break at midpoint)
Prepayment — annual lump sum	___% of original balance
Prepayment — payment increase	___% per year
Portable?	Yes / No
Charge type	Conventional / Collateral
Assumed?	Yes / No
Rate hold period	___ days
Cash back (if any)	$____

Total cost (best case — full term)
Total cost (break at year 3)
Overall winner

Real-world comparison examples

Example 1: Big bank vs monoline

Factor	RBC (Big Bank)	First National (Monoline)	Difference
Rate	4.49%	4.39%	−0.10% (monoline wins)
Monthly payment ($500K)	$2,740	$2,712	−$28/month
Total interest (5yr)	$104,200	$101,820	−$2,380
Penalty method	Posted-rate IRD	Fair IRD (actual rate)	Monoline far cheaper
Estimated penalty (break yr 3)	$16,000	$7,500	−$8,500
Prepayment privileges	20% lump + 20% increase	20% lump + 20% increase	Tie
Portable	Yes	Yes	Tie
Charge type	Conventional	Conventional	Tie
Total cost (full term)	$104,200	$101,820	Monoline saves $2,380
Total cost (break at yr 3)	$78,000 + $16,000 = $94,000	$63,000 + $7,500 = $70,500	Monoline saves $23,500

Example 2: Low-rate restricted vs slightly higher with flexibility

Factor	Lender A (Restricted)	Lender B (Flexible)	Difference
Rate	4.29%	4.49%	+0.20% (Lender A cheaper)
Total interest (5yr, $500K)	$99,060	$104,200	+$5,140 (Lender A cheaper)
Penalty method	Posted-rate IRD	3-month interest only	Lender B far cheaper
Estimated penalty (break yr 3)	$18,000	$5,600	−$12,400
Prepayment privileges	10% lump only	20% lump + 20% increase	Lender B far better
Interest saved from prepayments (if $10K/yr extra)	$28,000 (limited by 10% cap in some years)	$33,000 (full $10K every year)	−$5,000
Portable	No	Yes	Lender B
Charge type	Collateral	Conventional	Lender B
Total cost (full term, with $10K/yr prepay)	$71,060	$71,200	Essentially tied
Total cost (break at yr 3)	$57,000 + $18,000 = $75,000	$48,000 + $5,600 = $53,600	Lender B saves $21,400

The “cheaper” rate costs $21,400 more if you break at year 3. The slightly higher rate with better terms is the better deal for most borrowers.

Common comparison mistakes

Mistake	Why It’s Wrong	What to Do Instead
Comparing rate only	Ignoring penalty, privileges, and charge type	Use the full comparison worksheet
Ignoring the penalty	60% of borrowers break before term ends	Always calculate the break-at-midpoint scenario
Choosing cash-back offers	Cash back sounds appealing but disguises a higher effective rate	Calculate the true cost: higher rate × term + cash back returned if you break
Comparing different term lengths	3-year vs 5-year vs variable aren’t directly comparable	Compare total cost scenarios for each option separately
Not negotiating	Accepting the first offer from one lender	Get quotes from at least 3 lenders; use a broker
Ignoring charge type at renewal	Collateral charges cost more to switch	Factor in the $800–$1,500 switching cost

Questions to ask every lender

Before you sign, ask these questions to any lender or broker:

Question	Why It Matters	Red Flag Answer
How do you calculate the IRD penalty?	Biggest cost difference between lenders	“We use posted rates”
What are the prepayment privileges?	Determines how fast you can pay down	Less than 15% annual lump sum
Is this a conventional or collateral charge?	Affects switching at renewal	Collateral charge without your knowledge
Is the mortgage portable?	Critical if you might move	“No” or “limited portability”
What is the rate hold period?	Time to lock in rate before closing	Less than 90 days
What happens if I want to switch lenders at renewal?	Some lenders make it expensive	Transfer/discharge fees above $500
Are there any restrictions on switching at maturity?	Some lenders require early notice	Must give 60+ days notice or auto-renew

The bottom line

Rate is only one of six factors — penalty method and prepayment privileges often matter more
A 0.10% rate difference costs ~$2,400 over 5 years on $500K — but a bad penalty clause can cost $15,000+
Always calculate the “break at year 3” scenario — 60% of Canadians don’t complete their 5-year term
Monoline lenders typically offer lower rates AND better terms — the big bank premium is real
Collateral charges cost $400–$1,100 more to switch at every renewal — ask before you sign
Get at least 3 quotes and use a broker — brokers access wholesale rates from 30+ lenders