Interest Rate Differential (IRD)

Quick Definition

A mortgage penalty based on the gap between your rate and current rates.

Full Explanation

The interest rate differential is a penalty for breaking a fixed-rate mortgage early. It compensates the lender for the difference between your contract rate and the rate it can now lend at for your remaining term. Big banks' IRD calculations, which use posted rates, can produce penalties of many thousands of dollars.

Related Terms

Prepayment Penalty

A fee charged by lenders when you pay off or break a mortgage before the term ends.

Closed Mortgage

A mortgage with limits on prepayment and penalties for breaking it.

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