Mortgage · Prepayment
Five-year mortgage rule calculator.
Section 10 of the federal Interest Act says that when a mortgage on real property is not payable until more than five years after its date, the borrower can pay it out after the five years with three months’ further interest, and no more interest is chargeable. It has exceptions, and a standard 5-year term does not qualify. This checks your dates and the amount.
If your mortgage was not payable until more than five years after its date, then after those five years you can tender the principal and interest due plus three months’ further interest, and no further interest is chargeable (Interest Act s. 10(1)). It does not apply to a mortgage given by a corporation (s. 10(2)(a)), and a term of exactly five years is not “more than five years”.
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Does the rule apply?
Fill the form and press Calculate.
What section 10 says
Section 10(1) applies where principal or interest secured by a mortgage on real property “is not, under the terms of the mortgage” payable “until a time more than five years after the date of the mortgage”. Then, “at any time after the expiration of the five years”, the person liable can pay the principal and interest due to the time of payment, calculated under sections 6 to 9, “together with three months further interest in lieu of notice”, and no further interest is chargeable after that.
Section 10(2) says the rule does not apply to a mortgage given by a joint stock company or other corporation, or to prescribed mortgages given by prescribed entities. The regulations that prescribe those entities are outside this page; if your borrower is a business or a trust, ask a lawyer.
How the dates are worked
The five years run from the date of the mortgage, so the earliest day is the day after the fifth anniversary. A mortgage dated 29 February uses 28 February as its anniversary in non-leap years. The term has to be longer than five years: a 7- or 10-year fixed term qualifies on its face, a 5-year term does not.
Worked example. A mortgage dated 15 March 2020 with a 10-year term, $400,000 owing at 4.5%. The earliest day is 16 March 2025. On 15 October 2026 the estimate is $400,000 × 4.5% ÷ 12 × 3 = $4,500. If the lender quoted $18,000, the gap is $13,500, worth raising with the lender in writing.
Why this matters next to an IRD penalty
FCAC describes the usual prepayment penalty as the higher of 3 months’ interest and the interest rate differential. Section 10 is a statutory rule that, where it applies, lets you pay the principal and interest due plus three months’ further interest once five years have passed, with no further interest chargeable. In practice that means a term longer than five years, such as 7 or 10. See the IRD penalty calculator for the usual penalty.
This is general information, not legal advice. Whether s. 10 applies to a given contract, lender and borrower is a legal question.
Source, read 15 October 2026: Interest Act, R.S.C. 1985, c. I-15, s. 10 — Justice Laws Website (act current to 21 September 2026). Penalty background: FCAC — Mortgage fees: Prepayment penalties (15 October 2025).
Frequently asked questions
Does the Interest Act cap my mortgage penalty after five years?
Where section 10 applies, yes: after the five years you can pay out the principal and interest due plus three months’ further interest. It applies only to a mortgage on real property that was not payable until more than five years after its date, and not to a mortgage given by a corporation.
Does my 5-year fixed mortgage qualify?
Not on its face. The balance has to be not payable until a time more than five years after the date of the mortgage, and a five-year term is not more than five years. Check the mortgage date and the term in your documents.
What is the earliest date I can use it?
The Act says “at any time after the expiration of the five years”. This tool uses the day after the fifth anniversary of the mortgage date.
What if my lender says the penalty is higher?
Ask for the calculation in writing and mention s. 10. Your contract and the facts decide whether the Act applies, so consider independent legal advice before paying a charge you think is above the statutory amount.
Does it apply if the borrower is a company?
No. Section 10(2)(a) excludes mortgages given by a joint stock company or other corporation.
Does this work for a variable-rate mortgage?
The section turns on when the mortgage is payable, not on whether the rate is fixed or variable. The amount here uses your rate as a flat estimate; use your lender’s statement for the exact interest.
General information — not legal advice
General information and arithmetic only, not legal advice. Whether section 10 applies depends on your mortgage contract, who gave it, and prescribed exceptions that this tool does not check. Get independent legal advice before relying on it.