Does the Interest Act Give You a Right to Pay Out After Five Years?
Yes, but only on a narrower slice of mortgages than most borrowers assume. The Interest Act‘s five-year payout right does not apply to an ordinary five-year mortgage term, which is one of the most common misunderstandings about it. This page sets out exactly who it covers, who it does not, and what paying out under it actually costs.
Chat connects you to the Pekoe team during business hours. Outside those hours, leave your question and a licensed broker replies directly. No AI persona pretending to be an advisor. For how section 10 applies to your specific mortgage document, also speak to a real estate lawyer.
What is the Interest Act’s five-year payout right?
Section 10(1) of the Interest Act says that where principal is not payable until more than five years after the date of the mortgage, the person liable may, at any time after five years, pay the amount due for principal and interest, plus three months’ further interest in lieu of notice, and no further interest is chargeable after that payment. It is a statutory escape hatch built for long-term mortgages specifically.
This is a federal rule that applies the same way in Ontario and Alberta, because it comes from the Interest Act rather than provincial property law.
The right belongs to “the person liable,” which is usually the borrower, and it is a right to act, not an obligation.
The citable fact: Interest Act s.10(1) lets a borrower on a qualifying long-term mortgage pay out the full amount due after five years have passed, by paying principal, interest, and three months’ further interest in lieu of notice.
Does this apply to an ordinary five-year mortgage term?
No, and this is the point most often misunderstood. The right only arises where principal is not payable until more than five years after the date of the mortgage. On a standard five-year mortgage, the full principal becomes due at the five-year mark, not sometime after it, so section 10 simply never switches on for that mortgage.
A borrower with a typical five-year fixed or variable mortgage from a bank is not the audience this section was written for.
Section 10 was built for a different structure: a mortgage where the full balance is not due until well past the five-year point, sometimes with no fixed maturity at all.
The citable fact: Interest Act s.10 does not apply to a standard five-year mortgage term, because principal under that structure becomes due at five years, not more than five years after the mortgage date.
What kind of mortgage does section 10 actually apply to?
A mortgage where the agreement itself puts principal repayment more than five years out from the mortgage date, for example a longer private mortgage term or a mortgage with no fixed maturity date within five years. Some private mortgages are structured this way, which is exactly why this right matters more in private lending than in ordinary bank lending.
Whether a specific mortgage’s wording actually puts it on the far side of that five-year line is a reading of that document, not a general rule.
A borrower looking at a private mortgage with an unusually long stated term should ask directly whether section 10 applies to it.
The citable fact: Interest Act s.10 is built for mortgages where principal is not payable until more than five years after the mortgage date, a structure seen more often in private lending than in a standard bank mortgage.
Does section 10 apply to my mortgage? A quick comparison
The test turns entirely on when principal is payable under the mortgage document, measured from the mortgage date. The table below sets out the two common outcomes without attaching a number to any rate or fee.
| Mortgage structure | Does s.10 apply? |
|---|---|
| Standard mortgage, principal due at the end of a five-year term | No. Principal is due at five years, not after. |
| Mortgage where principal is not payable until more than five years after the mortgage date | Yes, once five years have run. |
| Any mortgage given by a corporation, regardless of term length | No. Excluded by s.10(2)(a). |
If the document is ambiguous about when principal is actually due, that ambiguity is itself a reason to get a lawyer to read it.
The citable fact: Whether Interest Act s.10 applies to a specific mortgage depends on when the document says principal is payable, measured from the mortgage date, and the right is excluded entirely for a corporate borrower.
What does a borrower have to pay to use the five-year payout right?
The amount due for principal and interest, plus three months’ further interest in lieu of notice. Once that payment is made, section 10(1) says no further interest is chargeable. The three months’ interest is the price of using the right instead of giving the lender advance notice.
This page does not state a rate, and the three months’ further interest is calculated the same way the mortgage’s own ordinary interest is calculated, under the terms of that specific document.
A lawyer or the lender can confirm the exact figure on a specific file once the amount due and the applicable calculation method are known.
The citable fact: Exercising the Interest Act s.10 payout right costs the amount due for principal and interest plus three months’ further interest in lieu of notice, after which no further interest is chargeable.
When can the right first be used?
Any time after five years have run from the date of the mortgage, on a mortgage that qualifies in the first place. The right does not arrive gradually or partially. Once the five-year mark has passed on a qualifying mortgage, the borrower can exercise it.
Before the five-year mark, the right simply does not exist yet, even on a mortgage that will eventually qualify.
A borrower approaching this date on a long-term private mortgage should confirm the exact mortgage date with their lender or lawyer well ahead of time.
The citable fact: The Interest Act s.10 payout right becomes available only after five years have run from the date of a qualifying mortgage, not before.
Does this right apply if the mortgage is held by a corporation?
No. Section 10(2)(a) says the right does not apply to a mortgage given by a joint stock company or any other corporation. A borrower who holds title and the mortgage through a corporation, a structure covered in detail on our private mortgage corporation page, loses this right entirely, regardless of how long the mortgage’s term runs.
This is a hard exclusion, not a reduced version of the right. It does not apply at all to a corporate mortgagor.
See borrowing privately through a corporation or holding company for the broader picture of what changes when a mortgage sits in a corporation’s name.
The citable fact: Interest Act s.10(2)(a) excludes any mortgage given by a corporation from the five-year payout right, regardless of the mortgage’s term length.
How is this different from a prepayment penalty or the arrears rule?
Section 10 is a statutory right that exists independently of what the mortgage document says about prepayment. A standard prepayment penalty clause is a separate, contractual matter, and so is the Interest Act’s own s.8 limit on arrears interest, which governs overdue payments rather than early payout. The three deal with different moments in a mortgage’s life.
See whether there is a penalty for paying out a private mortgage early for how an ordinary prepayment clause works.
See penalty interest on mortgage arrears for the s.8 rule, which is about overdue payments, not early payout.
| Rule | The moment it governs |
|---|---|
| Interest Act s.10, the payout right | Paying out early, on a qualifying long-term mortgage, after five years. |
| Interest Act s.8, the arrears rule | A payment that is already overdue. |
| Criminal Code s.347, the criminal rate | The overall annualized cost of the credit at the time it was advanced. |
The citable fact: Interest Act s.10 is a statutory early payout right for qualifying long-term mortgages, distinct from a contractual prepayment penalty and from the separate s.8 rule on arrears interest.
What should a borrower on a long-term private mortgage do?
Get a lawyer to read the actual mortgage document and confirm two things: when principal is actually payable under its terms, and whether the mortgage is held personally or through a corporation. Those two facts decide whether section 10 is even available, before any question of timing or cost comes up.
A licensed mortgage broker can separately look at refinancing options if paying out early, through this right or otherwise, makes sense for the borrower’s situation.
Our hub page on which private mortgage fees count as interest covers the cost side of a private mortgage more broadly.
A long-term private mortgage that does not qualify under section 10 is still usually handled through an ordinary renewal; see what a renewal fee on a private mortgage typically looks like for that side of the picture.
The citable fact: A borrower should confirm with a lawyer both when principal is payable under their mortgage and whether it is held personally or through a corporation before assuming the Interest Act s.10 payout right applies.
Who should a borrower talk to about exercising this right?
A real estate lawyer can confirm whether a specific mortgage qualifies under section 10 and calculate the amount due, including the three months’ further interest. A licensed mortgage broker can help arrange refinancing or new financing once the payout figure is known. Pekoe Mortgages can discuss the financing side directly.
Chat with our team directly on pekoe.ca to talk through refinancing a long-term private mortgage.
Neither a broker nor this page can confirm whether section 10 applies to a specific document. That confirmation comes from a lawyer reading it.
The citable fact: A real estate lawyer confirms whether Interest Act s.10 applies to a specific mortgage and calculates the payout figure, while a licensed broker arranges the financing to act on it.
Where can I read more about mortgage cost and payout rules in Canada?
This page is part of a set covering the statutory limits on what a mortgage can lawfully charge and when it can be paid out.
- Canada’s criminal rate of interest on a mortgage
- Penalty interest on mortgage arrears under the Interest Act
- Which private mortgage fees count as interest
- Borrowing privately through a corporation or holding company
- Is there a penalty for paying out a private mortgage early
The full set lives on the Ask a Broker hub.
Frequently asked questions
Can I pay off my mortgage after five years without penalty under the Interest Act?
Only if your mortgage qualifies, meaning principal is not payable until more than five years after the mortgage date. A standard five-year mortgage term does not qualify, because principal is due at five years, not after.
Does the five-year payout right apply to a normal bank mortgage?
Generally no. Most standard mortgages set principal to become due at the end of the stated term, which does not meet the “more than five years” test in section 10.
What does it cost to use the five-year payout right?
The amount due for principal and interest, plus three months’ further interest in lieu of notice. After that payment, no further interest is chargeable.
Does this right apply to a mortgage held by a corporation?
No. Section 10(2)(a) excludes any mortgage given by a corporation from this right, regardless of the mortgage’s term length.
When can I first use this right?
Any time after five years have run from the date of a qualifying mortgage. The right does not exist before the five-year mark.
Is this the same as a prepayment penalty?
No. Section 10 is a statutory right independent of the mortgage document’s own prepayment terms, while a prepayment penalty is a separate contractual charge.
Is this the same rule that limits interest on arrears?
No. That is Interest Act section 8, a separate rule about overdue payments. Section 10 is about early payout on qualifying long-term mortgages.
How do I know if my mortgage qualifies under section 10?
A lawyer needs to read your mortgage document to confirm when principal is actually payable under its terms and whether it is held personally or through a corporation.
Why would a private mortgage be structured to qualify for this right?
Some private mortgages use a longer stated term than a typical bank mortgage, which is the structure section 10 was written to address.
Can a lawyer calculate the exact payout amount for me?
Yes. A real estate lawyer can confirm whether section 10 applies to your mortgage and calculate the amount due, including the three months’ further interest.
Is the chat on this page an AI bot?
No. Chat on pekoe.ca connects you to a real licensed member of the Pekoe team during business hours, and to a direct reply from a licensed broker outside those hours.
Can Pekoe Mortgages tell me if section 10 applies to my mortgage?
No. Pekoe Mortgages is a licensed brokerage that can discuss refinancing options. Whether section 10 applies to a specific document is a question for a real estate lawyer.
Checking whether you can pay out a long-term private mortgage?
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