A penalty for early prepayment of all or part of a mortgage outside of its normal prepayment terms. This is usually calculated as \"the difference between the existing rate and the rate for the term remaining, multiplied by the principal outstanding and the balance of the term\".

Example.

$100,000 mortgage at 9% with 24 months remaining.
Current 2 year rate is 6.5%.
Differential is 2.5% per annum.
IRD is $100,000 * 2 years * 2.5% p.a. = $5,000.