Mortgage prepayment: know your rights

Mortgage prepayment penalties and privileges

A prepayment penalty is a fee that your mortgage lender may charge you if you:

• pay more than the allowed additional amount toward your mortgage
• break your mortgage contract
• transfer your mortgage to another lender before the end of your term
• pay back your entire mortgage before the end of your term, including when you sell your home

Your lender may also call the prepayment penalty a prepayment charge or breakage cost.

If you have an open mortgage, you can make extra payments without paying a penalty. If you have a closed mortgage, there’s a limit to the extra amount you can pay on the principal amount each year. However, with closed mortgages, your agreement may include prepayment privileges. This allows you to pay more than your regular payments without triggering any prepayment charges.

Find out how to pay off your mortgage faster.

Your right to information about mortgage prepayment

Your lender may be a federally regulated financial institution. In that case, it must outline prepayment privileges, charges and other key details. You’ll find the information in a single prominently displayed information box in your mortgage agreement.

Your lender must also tell you how they’ll calculate the prepayment charges. They must provide you with a description of the elements they use to calculate the charges. If the calculation is complex, they may provide an example, an illustration or a simplified method to help you estimate the charges.

Learn more about prepayment penalties and how to avoid them.

Additional information about mortgage prepayment

Some lenders have agreed to provide more information on prepayments under a code of conduct. Banks that are members of the Canadian Bankers Association (CBA) have agreed to follow this code.

They’ll provide this additional information to help you understand prepayment and the charge that could apply if you choose to do this. This is so you can make informed decisions. They must do this in a manner, and using language, that is clear, simple and not misleading.

Lenders who follow the code have agreed to provide:

• information on:
  • the differences between mortgage types
  • ways in which you can prepay without having to pay a prepayment charge with examples
  • ways you can avoid a prepayment charge with examples
  • how they calculate prepayment charges with examples
  • actions that may result in you having to pay a prepayment charge, for example:
    • prepaying amounts that are higher than your mortgage agreement allows
    • refinancing your mortgage
    • transferring your mortgage to another lender
• online financial calculators to estimate a prepayment charge
• a toll-free number for knowledgeable staff who can provide information about mortgage prepayments. This includes information on the prepayment charge that would apply when you call. You can also ask for a written statement with the amount of the charge
• an annual statement, which includes:
  • prepayment privileges you can use to pay of your mortgage without having to pay a prepayment charge with examples
  • the dollar amount you can prepay each year under the terms of your agreement without having to pay a prepayment charge
  • an explanation of how they calculate the prepayment charge with examples
  • a description of the factors that could cause the prepayment charge to change
  • customized information about the mortgage, valid as of the date the information is produced. This is so you can estimate the prepayment charge
  • where you can find their online financial calculator and what information you can use to estimate a charge
  • any other amounts you must pay if you prepay your mortgage and how these amounts are calculated
  • a toll-free number for knowledgeable staff who can provide information about mortgage prepayments, with examples
• a written statement if a prepayment charge applies and you confirm that you’re repaying the full or part of your mortgage. That statement will include information such as:
  • the applicable prepayment charge
  • a description of how they calculated it
  • the period of time, if any, for which the prepayment charge is valid
  • a description of the factors that could cause the charge to change
  • any other amounts you’ll have to pay when you prepay your mortgage and how they calculated them

Banks will make this code available:

• at each of their branches in Canada where they offer products or services and at each of their points of service
• on each of their websites through which they offer products or services in Canada
• in writing, upon request

Find out if your bank is a member of the Canadian Bankers Association.

Learn more about the code of conduct on mortgage prepayments.

When these rights apply to you

These rights apply when you’re dealing with a federally regulated financial institution like a bank or federal credit union.

Find out if your financial institution is federally regulated.

Learn more about how your banking rights are protected.

Related links

• Paying your mortgage when experiencing financial difficulties