Ksena J. Court and Francis N. J. Taman

Lenders are cautioned to be very clear in the wording of their mortgages when it comes to how interest is to be calculated.  In Nussbaum v. Stoney,[1] the Alberta Court of Queen’s Bench applied a strict interpretation to the wording of the interest calculation in a mortgage.

The mortgage in question was a “tick the box” mortgage which stated that the interest rate was “to be calculated monthly”.  The issue was whether the lender was entitled to compound the interest monthly.

The Court held that the words of the mortgage are to be clear and unambiguous.  If there is ambiguity in a mortgage, then it should be resolved in favour of the mortgagor who did not draft the terms of the mortgage.  If the lender wanted the interest to be compounded on a monthly basis, then it should have stated so in the mortgage.  As such, the lender was only entitled to simple interest and it was directed to recalculate the amount owing under the mortgage.  Further, the lender was directed to repay any overpayment to the mortgagor.

In light of this decision, lenders may want to take a second look at the wording of their standard mortgage documents to ensure that the terms of their security actually reflect the interest calculation that they intend to apply.

[1] 2017 ABQB 774 (Alta. Master)