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ARTICLE · 18 MAY 2011

Default Interest Rates: Section 8 Of The Interest Act

Blake, Cassels & Graydon LLP
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Section 8 of the Interest Act (Canada) prevents a lender from charging a higher rate of interest following a default on a mortgage of real property than that charged during the term of the mortgage.

CanadaReal Estate and Construction
Silvana D'Alimonte
Silvana D'Alimonte
Beth Earon
Beth Earon
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Copyright 2011, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Real Estate, May 2011

Introduction

Section 8 of the Interest Act (Canada) prevents a lender from charging a higher rate of interest following a default on a mortgage of real property than that charged during the term of the mortgage. For example, a mortgage that provides for a rate of interest of 5% during its term that is increased to 10% should the borrower fail to pay the amount due at maturity or should the borrower go into default will contravene section 8 of the Act. This section is not limited to interest, but rather it includes fines, lump-sum bonuses and increased rates of compounding interest where the effect is an increased cost of a mortgage loan on default.

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