IRD
Interest Rate Differential
Canadian mortgage term definition with formula, examples, and limits used by mortgage brokers.
Definition
A prepayment penalty charged by lenders when breaking a fixed-rate mortgage before maturity. Calculated as the difference between your contract rate and the lender's current posted rate for the remaining term.
Formula
IRD = Outstanding Balance × (Contract Rate − Current Posted Rate for Remaining Term) × Remaining Months / 12
Example
$500,000 mortgage at 5.5%, 3 years remaining, current 3yr posted rate 4.0%: IRD = $500,000 × 1.5% × 3 = $22,500.
Related Terms
GDSMonthly housing costs divided by gross monthly income. Includes mortgage payment, property tax, heating, and 50% of condo fees.TDSAll monthly debt payments divided by gross monthly income. Includes housing costs plus credit cards, car loans, lines of credit, and other debts.LTVTotal mortgage debt divided by property value. Determines if CMHC insurance is required and which lenders qualify.CMHC InsuranceMandatory mortgage default insurance required when down payment is less than 20% (LTV > 80%). Enables up to 95% LTV financing.Stress TestBorrowers must qualify at a higher interest rate to ensure affordability if rates rise. Calculated as the maximum of contract rate + 2% or 5.25%.
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