This enactment amends the Interest Act in order to set out the maximum charge that a lender can exact for prepayment of a loan secured by a first mortgage or hypothec on property that is used as a primary residence.

It also sets out the circumstances in which such a charge must not be exacted.

R.‍S.‍, c. I-15

Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:

Prepayment charge

11 (1) If any principal money or interest is secured by a first mortgage on real property or a first hypothec on immovables used as a primary residence and under the terms of the mortgage or hypothec, the lender may, in the case of prepayment, exact a charge in respect of interest accruing, then

• (a) that charge shall not exceed the lesser of the following amounts:

  • (i) an amount equal to three months interest on the outstanding principal calculated at the average rate provided for in the mortgage or hypothec, and

  • (ii) an amount equal to the balance of the interest otherwise payable on the outstanding principal under the terms of the mortgage or hypothec; and

• (b) no charge shall be exacted if the prepayment is made as the result of the sale of the property used as a primary residence following

  • (i) the workplace relocation or forced termination of the borrower or the borrower’s spouse,

  • (ii) the serious illness or death of the borrower or the borrower’s spouse, or

  • (iii) the separation or divorce of the borrower and the borrower’s spouse.

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Deduction — calculation of charges

(2) When calculating the charge in respect of interest accruing, any amount that the borrower is entitled to repay annually without penalty under the terms of the mortgage or hypothec must be deducted from the outstanding principal.

Regulations

(3) The Governor in Council may make regulations defining any term for the purposes of this section.