Mortgage Discharge and Penalty Costs When Selling in Ontario

Selling a home with a mortgage still on it means that mortgage has to be paid off and removed from title on closing. That can bring a prepayment penalty and discharge costs that surprise sellers when they see the final numbers.

This article explains what those costs are, how the penalty is generally worked out, how the lender is paid from your sale proceeds, and what to ask before you list. The actual amounts depend on your mortgage contract and your lender.

The costs of paying off a mortgage on a sale

Sellers' costs include legal fees, a mortgage discharge fee, and sometimes a mortgage prepayment penalty, along with items such as realtor commission, moving costs, staging fees, repairs and cleaning. Realtor commission is typically 2% to 6% of the sale price and is negotiable.

• Prepayment penalty: charged by the lender for ending the mortgage before the term is up.
• Discharge fee: an administrative charge from the lender, which varies by lender and contract.
• Registration fee: the cost of registering the discharge electronically.
• Legal fees: including the work of dealing with the payout and the statement of adjustments.

The discharge fee is set by your lender and your mortgage contract, so check your documents or ask your lender for the amount instead of assuming one.

How the prepayment penalty is calculated

Lenders usually charge a penalty equal to the higher of three months' interest on the outstanding balance or the interest rate differential (IRD). The IRD is, roughly, the lender's estimate of what it loses when you pay off early.

The Financial Consumer Agency of Canada gives an example of a $200,000 mortgage at 6% with 36 months left. Three months' interest is $3,000, while the IRD is $12,000, so the higher figure would apply. That shows how big the difference can be. Federally regulated lenders must explain how they calculate the penalty.

Ask your lender for a written payout statement with a date, because the figure depends on your balance and the closing date.

Exceptions that can change the picture

If a mortgage is not payable until more than five years after its date, the Interest Act, s. 10(1), allows the borrower to pay it off at any time after five years. The borrower pays the principal and interest owing plus three months' further interest in lieu of notice, and no further interest can be charged.

This rule does not apply to a mortgage given by a joint stock company or any other corporation (s. 10(2)). The parallel Ontario rule in the Mortgages Act, s. 18, has the same corporate exception. If your home is held through a corporation, the rule may not help you, and a lawyer can confirm how your mortgage is treated.

If a lender cannot be found, or a proper discharge cannot be obtained without undue delay, the Mortgages Act, s. 12(3), allows a court to order the amount due to be paid into court and the mortgage discharged. This is unusual and is a matter for a lawyer.

How the lender is paid from your sale proceeds

You do not normally write a cheque yourself. Your lawyer asks the lender for a payout statement, and on closing the payout amount, including any penalty and fees, is deducted from the money you receive. What is left after the mortgage, legal fees, commission and other costs are paid is your net proceeds.

The discharge of the mortgage is registered electronically. A discharge of charge is an electronic instrument, and the registration fee was $85.00 effective November 3, 2025, made up of a $71.55 statutory fee, an $11.90 ELRSA fee and $1.55 HST. Only authorized Teraview account holders and their registered users, such as lawyers, can submit these documents. Fees can change, so your lawyer will confirm the current amount.

What to do next

• Find your mortgage contract and note the term, rate and prepayment rules.
• Ask your lender how the penalty would be calculated if you sold on your expected closing date.
• Ask whether the mortgage can be ported or transferred to a new home.
• Request a written payout statement and give it to your lawyer.
• Build the penalty, discharge fee and other costs into your net proceeds estimate.
• Check whether the mortgage was given by a corporation or has a term over five years, and mention that to your lawyer.

If you are weighing whether to sell now or wait until the term ends, compare the penalty to what waiting would cost. The best step is to get the lender's numbers in writing and review them with your lawyer.

Frequently asked questions