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ARTICLE · 28 SEPTEMBER 2021

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Court Refuses To Enforce Mortgage Prepayment Penalty

Gardiner Roberts LLP
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Many Canadian mortgages have a prepayment term that imposes a penalty if the mortgage advance is repaid by the borrower before the maturity date.

CanadaFinance and Banking
James R.G. Cook
James R.G. Cook
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Many Canadian mortgages have a prepayment term that imposes a penalty if the mortgage advance is repaid by the borrower before the maturity date. The general purpose of such a term is to provide compensation to the lender for the unanticipated time required to find another borrower of the funds, in contrast to the maturity date where the lender expects to take steps to prepare to reinvest the funds. The specific penalty imposed by a prepayment term, if any, depends on the wording of the mortgage contract between the parties.

A recent Ontario Superior Court of Justice decision, 2598508 Ontario Inc. v. 2394049 Ontario Inc. o/a Goodman Green Solutions, 2021 ONSC 5293 (CanLII) involved a dispute over the interpretation of a prepayment clause in a mortgage, which stated:

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