Understanding prepayment penalties isn’t just about preparing clients for a potential fee, it’s increasingly a strategic edge for mortgage brokers.
That was the message from Matt Imhoff, founder of Prepayment Penalty Mentor, during a recent MPC-hosted webinar.
Imhoff, a broker himself, has built his reputation helping other brokers decode interest rate differentials (IRDs) and use penalty insights to uncover early switch opportunities, deliver smarter advice and build long-term client trust.
Getting clear on the numbers
Much of the confusion around penalties comes down to how IRDs are calculated. As Imhoff explained, the penalty on a fixed mortgage is usually the greater of three months’ interest or the IRD, which reflects the amount the lender says it’s losing in interest if the borrower ends their term early.
That “interest they’re losing” is based on a comparison rate the lender sets. Some use real market rates, while others use artificially low reinvestment rates that drive up the penalty.
“The lower the lender says they can earn, the bigger the IRD,” Imhoff said. “Some of these comparison rates don’t reflect actual rates you can find in the market. That’s where the cost can really balloon.”
Why timing matters
A key part of the session focused on how prepayment penalties evolve over time. As a mortgage progresses, lenders don’t stick with a single comparison rate. Instead, they adjust it based on how much term is remaining, starting with the 5-year rate, then shifting to the 4-year, 3-year, and so on.
These shifts, known as “transition points,” can cause penalties to jump or drop unexpectedly, depending on where interest rates are at the time.
Imhoff showed examples of how waiting just a few weeks, or acting a month sooner, can dramatically change the penalty amount. For example, one case study showed a penalty jumping by $5,000 because the lender started using its 2-year comparison rate.
Brokers who can anticipate these shifts can better guide clients on when to move and when to hold, he said.
Real examples from the field
The webinar included several real-world scenarios based on broker experiences:
- One client had three years left on a 5-year fixed at 5.24%. The penalty was just three months’ interest, but was about to spike as the contract approached a new comparison window. The broker moved quickly and saved the client thousands.
- Another file involved a monoline lender where the penalty was $8,250. But waiting 30 days would drop it to just under $6,800, purely due to a transition to a one-year rate.
- CIBC mortgages from early 2023 were highlighted as a current opportunity. Most still default to three months’ interest, even with more than two years remaining. But that window could close fast once they switch to comparing against two-year posted rates.
- CIBC mortgages from early 2023 were highlighted as a current opportunity, provided that they have more than two years and six months remaining. Most still default to three months’ interest (at the initial posted rate), even if the actual interest rate is high (5% or above). But that window could close fast once they switch to comparing against two-year posted rates, or when CIBC lowers its higher-than-market 6.64% 3-year posted rate.
A new tool for a long-time problem
While all of this might sound complicated, there’s now a tool that takes the guesswork out of it. Imhoff walked brokers through the platform he co-founded, Prepayment Penalty Mentor, which models penalties across more than 50 lenders and helps identify timing windows and savings opportunities before the renewal conversation even starts.
Prepayment Penalty Mentor offers tiered pricing starting at $20/month, with higher tiers including advanced tools for refinance comparisons and full analytics. For Mortgage Professionals Canada members, this introductory price drops to as low as $10/month (up to 50% off), accessible by using their MPC login email.
CMT took a closer look at the tool in March: The prepayment penalty trap: New tool helps brokers forecast the real cost of breaking a mortgage
What it all comes down to
The more brokers understand how prepayment penalties work and how they change over time, the better positioned they are to deliver advice that saves clients money and strengthens relationships.
“It’s not just about the savings,” Imhoff said. “It’s about managing expectations, building trust, and making sure your clients don’t get blindsided by something you could’ve helped them see coming.”
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Last modified: July 30, 2025