A common prepayment penalty method where the lender calculates the difference between the total interest you would have paid for the remainder of your term and the amount of interest they will earn from a new mortgage (with a new client) at current rates for the same amount of time as the remainder of your contract.  An IRD  penalty is intended to compensate the lender in circumstances where the interest income the lender will receive on the new mortgage is less than the interest they were going to receive on the existing mortgage, and is therefore usually only applicable if current interest rates are lower than that of the original mortgage.