1. What is the RBC IRD Penalty?

The RBC Interest Rate Differential (IRD) penalty is calculated when you break your fixed-rate mortgage before maturity. It compensates the bank for interest they would lose when you pay out your mortgage early.

2. How Does the Calculator Work?

The calculator uses the RBC IRD formula:

Where:

• \( Balance \) — Current mortgage balance (CAD)
• \( Rate \) — Your current mortgage rate (decimal)
• \( Market \) — Current market rate for similar term (decimal)
• \( Months \) — Months remaining in your term

Explanation: The penalty represents the difference between what RBC would earn from your mortgage versus what they could earn by lending the money at current rates for the remaining term.

3. Understanding Mortgage Penalties

Details: Fixed-rate mortgages typically use the higher of 3 months' interest or the IRD calculation. This calculator focuses on the IRD method which usually applies when rates have dropped significantly.

4. Using the Calculator

Tips: Enter your current mortgage balance, your contracted rate, the current market rate for a similar term, and months remaining in your term. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I find the current market rate?
A: Check RBC's current posted rates for terms similar to what remains on your mortgage.

Q2: Is this penalty tax deductible?
A: Mortgage penalties are generally not tax deductible in Canada.

Q3: Can I negotiate this penalty?
A: Banks typically don't negotiate IRD penalties as they're calculated according to your contract.

Q4: Are there other types of penalties?
A: Variable rate mortgages typically charge 3 months' interest. Some lenders may have different IRD calculations.

Q5: When is the penalty due?
A: The penalty is deducted from your mortgage proceeds when you pay out the mortgage.