What Happens When You Pay Out Your Alberta Mortgage Early

Paying off a mortgage before the term ends can save interest, but it can also cost you money. The charge depends heavily on your contract, your lender and your interest rate, so it pays to check before you commit.

This article walks through what to check, what a payout statement should show, and how the mortgage is removed from your title once it is paid. For your own mortgage, your contract and a lawyer or accountant are the best guides.

This article covers the law of Alberta.

Start with your mortgage contract

A prepayment penalty is usually the higher of three months' interest on the balance or the interest rate differential (IRD). Lenders typically use the IRD if your rate is above the current rate and the contract was signed less than 5 years ago.

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.

Before paying out in full, check whether a smaller lump sum within your privileges would meet your goal.

The federal five-year rule

Under the federal Interest Act, on a mortgage on real property where the principal or interest is not payable until more than five years after the date of the mortgage, you may pay the principal and interest due plus three months' further interest in lieu of notice. After that, no further interest is chargeable.

There is an exception. The Act excludes certain mortgages and debentures given by corporations and prescribed entities from this right.

Whether this applies to you depends on the dates and terms in your mortgage, so confirm with a lawyer.

Getting a written payout statement

Under the federal Code of Conduct for Federally Regulated Financial Institutions, when a prepayment charge applies and you confirm you are prepaying, the lender gives a written statement. It shows the charge and how it was calculated, including the outstanding amount, annual rate, comparison rate and remaining term if IRD was used. It also shows any other amounts payable on prepaying.

On request, a federally regulated lender will give a written statement of the prepayment charge, accurate as of the time it is produced. The Code sets no deadline for delivery. Provincially regulated or private lenders are not covered by the Code.

If your lender is a credit union or private lender, the charge and statement depend on your contract, so ask for the figures in writing.

Steps and costs once you pay

• Pay off the mortgage and any related HELOC.
• Ask the lender to confirm in writing that it is paid in full. Most lenders do not send this unless asked.
• A lawyer, notary or commissioner of oaths usually prepares the documents, which go to the land title registry office to remove the lender's rights and update title.
• The lender must furnish a discharge of mortgage within 30 days of full payment.

In Alberta, a mortgagee cannot charge a fee or expense for the discharge, and one who fails to provide it or charges for it commits an offence with a fine of up to $500.

Professional fees for a lawyer, notary or commissioner of oaths typically run $400 to $2,500.

The Registrar discharges a mortgage according to the terms of the discharge and enters it on the certificate of title. A discharge is normally in the prescribed form, signed by the mortgagee, with the proper affidavit of execution. Once it is entered, the land stops being liable for the amount discharged.

What to do next

• Read your contract for prepayment privileges and penalty wording.
• Ask your lender for a written payout statement.
• Compare the charge against the interest you would save.
• Arrange a lawyer, notary or commissioner of oaths for the discharge.
• Follow up if you do not receive the discharge within 30 days of paying in full.
• Check your title afterwards to confirm the mortgage is gone.

If a lender cannot or will not sign a discharge, a judge's certificate can allow the Registrar to discharge the mortgage in some cases, which is a matter for a lawyer.

Frequently asked questions