Mortgage Prepayment Under The Interest Act - More Exempt Entities

On January 1, 2012, the Prescribed Entities and Classes of Mortgages and Hypothecs Regulations (the "Regulations") under the Interest Act (Canada) (the "Act") came into force.

The Regulations expand the class of "prescribed entities" that are exempted from the protections afforded by Section 10 of the Act.

Section 10 of the Act provides for mandatory prepayment terms for mortgages and hypothecs over real property with a term of more than 5 years. Such mortgages must provide that, at any time after the first five years of the mortgage term, the mortgagor shall have the right to pre-pay the full amount of the mortgage and any accrued interest outstanding at that time, subject to the payment of a penalty of three months interest. By providing these mandatory prepayment provisions, Parliament provided mortgagors with the ability to renegotiate long-term, high interest mortgages without having to pay unreasonable penalties imposed by lenders.