Five-year prepayment right on a mortgage (Interest Act s. 10)

A buyer meets this rule when a business owns its building or land, or when the deal includes taking over a mortgage. Section 10(1) of the Interest Act applies to a mortgage on real property, or a hypothec on immovables, whose principal or interest is not payable under its terms until more than five years after its date. After those five years, a person liable to pay, or entitled to pay to redeem, who tenders or pays the amount due with three months’ further interest in lieu of notice ends any further interest. For the property question, see should I buy the real estate with the business.

The exception for corporations

Subsection 10(2) says subsection (1) does not apply to a mortgage or hypothec given by a joint stock company or any other corporation, nor to a debenture it issued that is secured that way. It also does not apply to prescribed mortgages given by prescribed entities. If the borrower is a company, section 10(1) may not help.

What to check or ask

• Is the borrower on the mortgage an individual or a corporation?
• What is the date of the mortgage, and when is the money payable under its terms?
• What does the contract say about early repayment? The Financial Consumer Agency of Canada, writing about home mortgages, explains that prepayment privileges are set in the mortgage contract and that not all lenders allow them on closed mortgages. See prepayment penalty.