With the cost of buying a house these days, it is not uncommon for parents to assist their children in the purchase of a home. Historically, such loans are secured by mortgages which call for no interest payments and for the principal to be payable on demand. In many cases, it is the intention of the parents to ultimately forgive the loan but the mortgage is registered to protect the child in the event of separation, divorce, or adverse financial circumstances.
In Ontario, demand loans are governed by the Limitations Act which specifies that a two-year limitation period will run from the date that a demand for payment is made. With respect to mortgages, however, the applicable statute is the Real Property LimitationsAct and a recent Court of Appeal decision has confirmed that a demand mortgage will cease to be enforceable ten years after it is registered unless collection proceedings are commenced prior to the expiry of the ten-year period. Ten years may seem like a long time but it can go by quickly. One possible solution may be to provide in the mortgage that it is payable “ten days after demand” rather than on demand. While this suggestion has not been the subject of any recent Court decisions, older cases would seem to suggest that it may extend the limitation period. If so, the mortgage will continue to serve its original purpose until demand for payment is made and for ten years thereafter.