Paying Out Your Alberta Mortgage Early: Steps and Statement

Paying out a mortgage before the term ends can save interest, but it can also trigger a charge. Knowing what the lender will ask for, and what you are entitled to see in writing, helps you decide whether to go ahead.

This article covers how to ask for a payout statement, the usual charges, and how the payout is finished on title. Your mortgage contract controls much of this, so keep a copy handy and check details with a lawyer.

This article covers the law of Alberta.

Check what your mortgage allows

Start with your contract. Prepayment privileges let you pay extra without penalty, through higher regular payments or lump sums up to a limit. Most lenders cap the amount per year, and unused amounts usually do not carry over. Open mortgages allow prepayment without penalty.

There is also a federal rule for longer mortgages. Where principal or interest on a mortgage on real property is not payable until more than five years after the date of the mortgage, the borrower may pay the principal and interest due plus three months' further interest in lieu of notice, and no further interest is chargeable after that. Certain mortgages and debentures given by corporations and prescribed entities are excluded.

Requesting the payout statement

Ask your lender for a written statement of the prepayment charge. A federally regulated lender will give one on request, and it must be accurate as of the time it is produced. The Code sets no deadline for delivering it.

When a charge applies and you confirm you are prepaying, a federally regulated lender gives a written statement showing the charge and how it was calculated. If the interest rate differential was used, it includes the outstanding amount, annual rate, comparison rate and remaining term, along with any other amounts payable on prepaying.

Provincially regulated or private lenders are not covered by that Code. With a credit union or private lender, what you receive depends on your contract, so ask for the figures in writing.

How the charge is usually worked out

A prepayment penalty is usually the higher of three months' interest on the balance or the IRD. Ask the lender to show the calculation so you can compare it against the savings.

Completing the payout and getting the discharge

• Pay off the mortgage and any related HELOC.
• Ask the lender to confirm in writing that it is paid in full, since most lenders do not send this unless asked.
• A lawyer, notary or commissioner of oaths usually prepares the documents, which are submitted to the land title registry office to remove the lender's rights and update title.

Once a mortgage is fully paid, the lender must give you a discharge of mortgage within 30 days. The lender cannot charge a fee or expense for the discharge, and a lender who fails to provide it or charges for it commits an offence with a fine of up to $500. Professional fees for the person preparing the paperwork typically run from $400 to $2,500.

A discharge is normally in the prescribed form, signed by the lender and accompanied by the proper affidavit of execution. Once it is entered on title, the land stops being liable for the amount discharged.

If the lender cannot or will not sign, a judge's certificate that the money has been paid can allow the Registrar to discharge the mortgage.

What to do next

• Read your mortgage contract for prepayment privileges, open terms and notice requirements.
• Request a written payout and prepayment charge statement.
• Compare the charge with the interest you expect to save.
• Arrange to pay off any related HELOC.
• After payment, ask for written confirmation of payment in full and track the discharge.
• Check your title afterward to confirm the discharge was entered.

Frequently asked questions