Prepayment Rights Under The Interest Act

Article by Silvana D’Alimonte, ©2005 Blake, Cassels & Graydon LLP

This article was originally published in Blakes Bulletin on Real Estate & Mortgage Financing - March 2005

Borrowers and lenders take note – an inconspicuous but important statutory right of prepayment exists under the federal Interest Act which applies to non-corporate borrowers.

Right to Prepay after Five Years.

Section 10 of the Interest Act (Act) was first enacted to protect farmers from being locked into long-term mortgages at high interest rates. The Act provides for a right of prepayment in circumstances where principal or interest under a mortgage are payable more than five years after the "date of the mortgage". If this is the case, the mortgage can be prepaid in full after the expiry of the five year period, together with an additional payment equal to three months worth of interest. No additional payments or penalties can be charged by the lender. However, this statutory right of prepayment is expressly