An IRD fee represents the interest your lender would lose out on if it stopped lending to you at your contract rate and instead lent to you at today’s rate. “It’s essentially a tool lenders use to help compensate them for the loss in profit from a customer,” says Joe Bladek, an Ontario-based mortgage broker. “And because the customer has broken the mortgage early, [the lender] needs to make up for that.” Fixed-rate mortgage holders are much more likely to face the IRD —and a substantial one at that — if they choose to break their mortgage in a low-interest rate environment. That’s because when interest rates are low, the gap between your contract rate and the current rate is wider. (Variable-rate mortgages tend to be more attractive because they fluctuate with the Bank of Canada’s interest rate moves.) However, in the current high-interest rate environment, the preference gap between fixed- and variable-rate mortgages seems to be lessening, with fixed-rate becoming more popular among homebuyers.