A lender's posted rate is its publicly advertised rate for a given term — the headline number on its rate sheet. A discounted rate is what a specific borrower actually negotiates and pays, which for most Canadian mortgage borrowers is meaningfully lower than the posted figure. As of August 2026, the Bank of Canada's published series of posted rates offered by the major chartered banks shows a five-year conventional rate in the neighbourhood of 6%, while the actual contract rates being arranged in the market — after negotiation — routinely run one to two percentage points below that. That gap between the advertised number and the real street price is the raw material this module is about.
Module 01's IRD formula needs a “comparable rate today” figure to compare against the client's contract rate. If that comparison figure is anchored to a lender's currently posted rate, rather than the discounted rate a similar borrower could actually obtain today, it tends to understate how favourable today's real market actually is. Since a smaller comparison rate widens the gap against the client's own contract rate, and a wider gap produces a larger IRD, anchoring the comparison to a posted rather than a genuinely available discounted rate tends to push the calculated penalty upward.
To make this concrete with clean, illustrative numbers rather than any specific lender's real figures: a client with a 4.00% contract rate, three years remaining, on a $400,000 balance. If the comparison figure used is a real, currently available discounted rate of 3.80% for a similar term, the gap is 0.20 points and the IRD is small — roughly $400,000 × 0.20% × 3 ≈ $2,400. If instead the comparison figure used is anchored to a much higher posted rate, and the effective gap works out closer to 1.00 point, the IRD on the same balance and same time remaining becomes roughly $400,000 × 1.00% × 3 = $12,000 — five times larger, on the same file, purely because of which rate stood in for “today.”
Which comparison-rate method a given lender uses at any point in time is that lender's own internal policy, and internal policies change without notice — which is exactly why this course does not name a specific institution's current method as settled fact. What's stable enough to teach as a general pattern is the mechanism itself: a comparison anchored to a posted rate, rather than to a genuinely available discounted rate, tends to produce a bigger apparent gap and therefore a bigger IRD. Broadly, credit unions and monoline lenders have a reputation in the market for methods closer to discount-to-discount comparisons, and larger institutions have drawn more public scrutiny over posted-rate-anchored methods — but a broker should confirm the actual method for the actual lender and file in front of them, not assume based on lender type.
The reliable response isn't trying to out-calculate the lender's own formula from the outside — it's requesting the lender's actual written penalty quote before advising a client to commit to breaking anything, and asking directly what comparison rate and method were used to arrive at it. A client who's heard “my friend's penalty was way smaller at their credit union for a similar mortgage” isn't necessarily hearing a myth — different comparison-rate methods really can produce very different dollar outcomes on economically similar files, which is exactly why a written, lender-specific quote beats any general rule of thumb.
None of this changes which formula applies — Module 01's greater-of-two-calculations rule still governs. What it changes is how much confidence a broker should place in a rough mental estimate of the IRD side of that comparison, versus the three-months'-interest side, which is simple enough to calculate reliably by hand. Any time IRD looks likely to be the operative number, treat the estimate as a starting range, not a final figure, until the lender's actual written calculation is in hand.
Why does anchoring an IRD comparison to a lender's posted rate, rather than a real, currently available discounted rate, tend to produce a bigger penalty?
A posted rate is the advertised, pre-discount figure, well above what a real borrower would actually pay today — using it as the “today” side of an IRD comparison understates the true market rate, which widens the gap against the client's own contract rate and pushes the calculated penalty up. It's the opposite relationship from the first, tempting answer, and the concept has no bearing on variable-rate mortgages at all, since they're penalized with three months' interest rather than IRD in the first place.
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