TD Explains: What is an IRD?

IRD stands for Interest Rate Differential and is perhaps most easily understood as a charge a customer could possibly incur for closing a mortgage early.

An IRD occurs when a customer decides to discharge or "break" their mortgage – also known as paying out a mortgage – before the end of the term or wants to make a lump sum payment more than is allowed according to their mortgage terms. 

Here is how it works at TD:

A prepayment charge for a closed mortgage with a variable interest rate is calculated as three months of interest. We calculate the interest you would owe over 90 days on the amount being prepaid, using your annual interest rate. The result is the three months of interest amount that you will have to pay.

The prepayment charge for a closed mortgage with a fixed interest rate is the higher of two amounts:

  1. Three months interest amount, OR 
  2. The Interest Rate Differential, aka the IRD, which is the difference between the principal amount you owe at the time of the prepayment and the principal amount you would owe using a similar mortgage rate. The similar mortgage rate is the posted interest rate for a similar mortgage, minus any rate discount you received. To calculate your estimated IRD, please consult the TD Mortgage Prepayment Calculator.

Depending on how much time is left on your mortgage term, a prepayment charge can cost several thousands of dollars, making it critical that you understand the terms of your mortgage before you decide to pay it out. 

Customers have options. If you have a fixed rate mortgage, and you're moving to a new home, you may be able to port (or move) your existing mortgage terms without charge to the new mortgage. This may make sense if you're buying a new house with the same or larger principal amount mortgage. 

If you need additional funds, your existing rate and term are transferred to your new mortgage for the existing principal amount, with any additional funds priced at current rates for the term closest to your remaining term. The final rate is a blended rate of the existing and new rates. 

For more information regarding prepayment charges and to discuss your specific mortgage, please speak to a mortgage specialist either at your local branch or by calling 1-800-722-3098.