Interest Rate Differential (IRD) is a type of mortgage prepayment penalty.

It's meant to compensate the lender for lost interest due to the borrower's early payment.

It generally applies when the:

(A) borrower pays off more of their closed fixed mortgage than the lender's prepayment privileges allow.


(B) the lender's IRD penalty is greater than three months' interest.

IRD charges can range from a few thousand dollars to tens of thousands of dollars, depending on the loan amount, rate and term remaining.

IRD charges are calculated in various ways depending on the lender.

One method is to take the difference between your existing mortgage interest rate and the lender's current interest rate for a similar term, then multiply this difference by the amount of the mortgage being prepaid and the time remaining on the loan's term.

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