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Is there any legislation that gives the homebuyer certain rights regarding the prepayment of his or her mortgage?

In the case of an individual, the Canada Interest Act permits prepayment of a mortgage after the fifth anniversary of a mortgage and limits the prepayment penalty to a maximum of three months’ interest. If you want to prepay your mortgage before this five-year period, the prepayment and penalty amounts are subject to negotiation between you and your lender. This five-year rule does not apply to a corporation where the prepayment terms are specifically outlined in a contract.

If your mortgage is insured (must be if the loan to value ratio exceeds 75%), the National Housing Act that governs all insured mortgages permits prepayments of 10% on the outstanding principal, without penalties on the 12th and 24th payment dates. At the 36th payment date, any amount may be repaid but it is subject to a three-month interest penalty.

Many institutions offer the opportunity to make a 10% prepayment annually without penalty. Lump sum prepayments are usually permitted on the anniversary date of the mortgage.

For more information talk to your financial institution about the prepayment opportunities available under your mortgage.