Refinancing cost-benefit
Breaking your mortgage early to chase a lower rate only pays off if the interest you save clearly beats the penalty your lender charges to let you out.
Every closed mortgage in Canada comes with a prepayment penalty: the fee your lender charges to end the contract before the term is up. On a variable-rate mortgage it's usually simple, three months' interest on your balance. On a fixed-rate mortgage it's the greater of three months' interest or the interest rate differential (IRD), which is the lender's estimate of the interest it loses by re-lending your money at today's lower rates. When rates have dropped since you signed, the IRD is almost always the bigger number, and it can run into five figures.
The cost-benefit test is just arithmetic. Add up the interest you'd save over the rest of your term at the new lower rate, then subtract the penalty plus any new costs to close (legal, appraisal, discharge, title fees). If what's left is comfortably positive, breaking has a case; if it's thin or negative, staying put is cheaper. The catch is that most of your savings arrive far in the future while the penalty is due today, so a refinance that "breaks even" only near the end of your term is a weaker deal than one that pays back in a year or two.
Here's the part lenders don't volunteer: the IRD is not calculated the same way everywhere, and the method quietly decides how much you pay. Many big banks compute the IRD using their inflated posted rates rather than the discounted rate you actually got, which inflates the penalty, sometimes by thousands, compared to a monoline lender that uses your real contract rate. Two people with identical mortgages can face very different penalties purely because of who they borrowed from. Always get the exact penalty quote in writing from your lender before running any numbers; a rough estimate can be off by enough to flip the whole decision.
One rule works in your favour. Under the federal Interest Act, once five years have passed since your mortgage was first advanced, the most a lender can charge to break it is three months' interest, no IRD allowed. So on a longer term that's more than five years old, the penalty math gets dramatically cheaper, which is worth checking before you assume breaking is unaffordable.