What is a prepayment penalty on an Alberta mortgage and how is it calculated?

This answer covers the law of Alberta.

A prepayment penalty is a charge a lender may apply when you pay off a mortgage early, such as when you sell or refinance before the term ends. It is usually the higher of three months' interest on the balance or the interest rate differential (IRD). Lenders typically use the IRD if your rate is above the current rate and the contract was signed less than 5 years ago.

Prepayment privileges let you pay extra without penalty, through higher regular payments or lump sums up to a limit, and open mortgages allow prepayment without penalty. Most lenders cap the amount per year. For a mortgage not payable until more than five years after its date, the Interest Act lets you prepay by paying principal and interest due plus three months' further interest, though certain corporate and prescribed-entity mortgages are excluded.

A federally regulated lender must give a written statement showing the charge and how it was calculated once a charge applies and you confirm you are prepaying. On request it will give a statement accurate when produced, but no deadline is set. Provincially regulated or private lenders are not covered by this Code, so check your contract.