What does it cost to discharge a mortgage when selling a home in Ontario?

When you sell your home in Ontario and you still have a mortgage on it, that mortgage must be paid off (discharged) at closing. The payoff reduces what you receive from the sale after paying out the mortgage balance, but there can also be additional costs associated with the discharge.

First, your lender charges a mortgage discharge fee to remove their registered charge from title — this is a relatively modest administrative fee. Second and more significant, if you are breaking your mortgage before its term ends, you may owe a prepayment penalty. Penalty amounts vary considerably depending on your lender and the terms of your mortgage — for fixed-rate mortgages, the penalty is often the greater of three months' interest or the interest rate differential (IRD), which can be very large in some cases.

Your lender will provide a mortgage discharge statement showing the balance owing, any penalties, and the per diem interest to account for the exact closing date. Your real estate lawyer will request this statement and use it to calculate the precise payout needed to discharge the mortgage at closing. Review the discharge statement early so there are no surprises about what you will net from the sale.