Short answer
Yes, if a closed mortgage is repaid before maturity and the contract permits a prepayment charge. Selling the property does not automatically remove the penalty. An open mortgage, an eligible port or a hardship accommodation may produce a different result.
The client concern behind the question
The seller calculates equity using the visible mortgage balance and accepts an offer, then learns that the payout statement includes a penalty worth several months of payments.
What the verified rule or guidance says
FCAC explains that breaking a closed mortgage normally triggers a prepayment penalty, while an open mortgage can generally be repaid without one. The contract controls the calculation and any porting privilege.
What it does not guarantee
A portable mortgage is not guaranteed to port to any property or borrower situation. The lender may require requalification, an acceptable new property, timing compliance and enough mortgage amount. Hardship-related penalty relief applies only in the circumstances and lender scope described by FCAC guidance.
A practical Ontario example
Illustration only: A seller has eight months left on a fixed term and buys a less expensive home. The lender approves the new property but the smaller replacement loan cannot absorb the whole existing balance, creating a partial penalty even though the mortgage is “portable.”
Practical steps to consider
Before listing or buying, obtain a dated penalty estimate, port rules and maturity date. Compare porting, waiting, blending, using permitted prepayments, switching or selling now. Recalculate after every rate or closing-date change.
Questions to ask before deciding
- Which statement is law or regulator guidance, and which part is the lender’s own policy?
- What are the complete costs today, at renewal and at the expected exit?
- What documents, dates or property facts could change the answer?
- Would an A, alternative/B, MIC or private lender view the verified file differently?
- What is the backup plan if the preferred route is declined or delayed?
Rajiv’s broker perspective
A useful answer must solve the client’s real concern, not repeat a definition. I would verify the documents and timeline, separate regulator requirements from lender policy, then compare the available routes in dollars. A conventional A lender may offer the lowest cost when the file fits. An alternative/B lender may use a broader income or credit approach. A MIC or private mortgage may provide short-term flexibility, but fees, interest, term and the exit must be clear. The right recommendation is the one the client can carry and exit safely.
Related: Mortgage declined? Start here · Mortgage Knowledge Centre · Updates & Rules Centre
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