Mortgage Enforcement And The Interest Act

We have previously written about lenders attempting to charge a three-month interest fee (or "penalty", or "bonus") after a default by a mortgagor Three-Months' Mortgage Interest – To Charge or Not to Charge – CP LLP. It is settled law that, after a default, a mortgagee cannot charge such a fee, as it violates section 8 of the Interest Act. Similarly, mortgage terms that purport to increase the interest rate applied to arrears upon a default will not be enforced.

A recent Court of Appeal decision addresses an interesting (no pun intended) interest provision in a mortgage agreement that the trial judge had found to violate section 8 of the Interest Act. In Rabinowitz v. 2528061 Ontario Inc., 2026 ONCA 21, the Court of Appeal considered a mortgage agreement relating to a vacant property that a purchaser intended to develop. In response to a request by the purchaser for an extension of the closing date to allow for additional due diligence, the vendor requested a loan