Canadian Mortgage Law and Prepayment Penalties

22 Pages Posted: 13 Jun 2015 Last revised: 15 Jun 2015

Peter S. Spiro

University of Toronto - Mowat Centre for Policy Innovation, School of Public Policy and Governance

Date Written: 2015

Abstract

This article illustrates the imbalance of power between the mortgagor and mortgagee, which is particularly apparent for individual mortgagors. Prepayment and due on sale provisions are standard mortgage terms that contribute to this imbalance. Although these clauses purport to operate separately, in reality, both are frequently triggered by the sale of a property; the law of contract suggests that these provisions should not be enforceable. Relevant legislation is lacking in this area and should be reformed to provide more effective consumer protection while acknowledging that banks operate with the goal of maximizing profits. A reasonable compromise would involve basing the transferability of mortgages on objective criteria such as the size of the down payment provided by the buyer, rather than leaving it purely to the discretion of the lender.

Keywords: mortgages, mortgage penalties, prepayment clause, due on sale clause, penalty clauses, financial services, class actions, borrowing rates, enforceability of clauses, consumer protection, unconscionability real estate, consumer protection, imbalance in power, legislative protection, economics

Suggested Citation

Spiro, Peter S., Canadian Mortgage Law and Prepayment Penalties (2015). Western Journal of Legal Studies, Vol. 5, No. 4, 2015. Available at SSRN: https://ssrn.com/abstract=2617449

Peter Spiro (Contact Author)

University of Toronto - Mowat Centre for Policy Innovation, School of Public Policy and Governance ( email )

720 Spadina Avenue, Suite 218
Toronto, Ontario M5S 2T9
Canada

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