Reverse Mortgage Break Cost Estimator

How Reverse Mortgage Prepayment Penalties Work in Canada

Every Canadian reverse mortgage has some form of prepayment penalty — a fee charged if you discharge the loan before the end of its term. The rationale is that the lender priced the loan based on an expected interest stream, so an early repayment triggers a compensating fee. The catch is that each lender calculates this penalty differently, and the differences can be substantial — a $10,000 difference on a $300,000 balance is not unusual.

CHIP (HomeEquity Bank)

CHIP's standard products use the Canadian bank formula: the greater of three months' interest or the Interest Rate Differential (IRD). Three months' interest is straightforward — balance × rate × 3/12. IRD compares your contracted rate to the lender's current rate for a comparable term, multiplied by the balance and the remaining term. When rates have fallen since you signed, IRD typically dominates. CHIP Open is the exception — a 6-month bridge product with zero prepayment penalty at any time. If you originally took CHIP Open, breaking it costs nothing.

Equitable Bank

Equitable Bank uses a declining IRD schedule that is more favourable to borrowers within the first three years than HomeEquity Bank's. Functionally the math is similar — greater of three months' interest or IRD — but Equitable's IRD calculation discounts more aggressively, especially in early years. For a borrower who expects to repay within 2–3 years, Equitable often has materially lower break costs than CHIP.

Bloom Finance

Bloom publishes a schedule-based penalty: 8% of the balance in Year 1, declining 1% per year (7% / 6% / 5% / 4%). This is simpler to calculate but can be expensive in early years. The critical exception: zero penalty if you are downsizing, moving to an assisted living facility, or upon death. Those exit events are the majority of real-world discharges, which makes the headline schedule less punishing than it looks on paper.

Home Trust

Home Trust entered the reverse mortgage market in October 2025. Their prepayment schedule is IRD-based and conceptually similar to other bank reverse mortgages. The exact mechanics are broker-disclosed; we model it as the greater of three months' interest or IRD, same as CHIP.

Fraction

Fraction (a shared-appreciation product, technically not a reverse mortgage) has no prepayment penalty at any time. The catch is that the repayment must be a full lump sum — no partial payments allowed. If you intend to discharge Fraction early, the only cost is the switching costs (legal, appraisal, etc.), not a penalty.

The switching costs most people forget

Even when the prepayment penalty is zero, breaking your reverse mortgage to switch lenders triggers a fresh set of setup costs: a new lender setup fee ($995–$2,995), a new Independent Legal Advice (ILA) certificate (~$300), a new property appraisal (~$400), legal closing costs (~$1,000), and a discharge fee at the departing lender (~$300). Expect $2,000–$3,500 in friction costs on top of any penalty. That's the number that determines whether a rate drop is worth acting on.

When breaking makes sense

Rule of thumb: if interest savings from the new rate over the remaining term exceed the total break cost by a comfortable margin (20%+), it's worth considering. If the break-even period is longer than the remaining term, it almost never makes sense. Life-event discharges (downsizing, LTC, death) often eliminate the penalty entirely for some lenders — check your specific product's exit terms before assuming the worst. See our exit strategies guide for a deeper discussion.

Always get a formal quote

This calculator is for scoping — understanding whether switching is worth investigating. It is not a substitute for a formal prepayment statement from your current lender. Request one in writing before making any decision. Your lender must provide it, and you have 10 business days to act on it in most cases. Pair it with a signed rate commitment from the new lender so you're comparing locked numbers, not estimates.