Should You Break Your Mortgage to Lock in a Lower Rate?

When rates start to drop, it’s natural to wonder if breaking your mortgage to get a lower rate might save you money. The answer? It depends—on the numbers, the penalty, and your overall situation.

The Payment Difference

Let’s say you have a $400,000 mortgage balance:

At 5.89% – Monthly payment: $2,533.13
At 4.49% – Monthly payment: $2,211.67

That’s a difference of about $321 per month in your pocket with the lower rate. Over a year, that’s roughly $3,852 in savings—before factoring in the cost to break your current mortgage.

[Click here if you want me to run the numbers for your own mortgage]

The Cost to Break

Breaking a mortgage usually comes with a prepayment penalty. Depending on your lender and whether you have a fixed or variable rate, this could be:

Variable rate: About 3 months’ interest
Fixed rate: Often the greater of 3 months’ interest or the Interest Rate Differential (IRD)—which can be much higher

You may also need to account for:

Legal fees
Appraisal costs

These costs can easily offset the savings from a lower rate—so you’ll want a broker to calculate the exact break-even point before making any moves.

When It Might Make Sense

Everyone’s situation is unique. Sometimes, simply refinancing for a lower rate isn’t worth paying the penalty.

But there are cases where it can still make sense—especially if you’re using the refinance to improve your overall cash flow.

Example:
If you’re consolidating higher-interest debt like a credit card (19%) or a line of credit (8%), the monthly savings could be hundreds of dollars more than the savings from the rate drop alone. In that case, freeing up cash flow now might be worth paying the penalty.

FAQ

Will my penalty go down over time?
Yes—penalties are based on your remaining balance and term, so they shrink as you get closer to renewal.

Is breaking my mortgage always worth it when rates drop?
No. It’s a math problem—sometimes the savings aren’t enough to justify the cost.

Final Thoughts

Breaking your mortgage for a lower rate can be a smart move in the right situation, but it’s not one-size-fits-all. The best next step is to run the numbers with a broker and see how it plays out for your specific file.

[Click here if you want me to run the math for your mortgage]