The client
A PEI family with an insured construction (draw) mortgage on a $400,000 as-complete contract value, $152,000 of which had already been drawn and paid to the original general contractor before that contractor became insolvent partway through the build and stopped work entirely -- part of the ordinary churn behind Canadian housing starts each year.
As-complete contract value
$400,000
PEI new-build
Draws already released
$152,000
To the original, now-insolvent builder
Combined income
$8,500 / month
Both salaried
Other debt
Car loan $300/mo
Unchanged through the build
What changed
The original GC became insolvent
Partway through the build, work stopped
The problem
With the original contractor gone, the family had to bring in a new general contractor to finish exactly the same remaining scope the first one had walked away from. The new contractor's quote came to $250,000 — $22,000 more than the $228,000 left in the original budget after the $152,000 already drawn. None of that extra cost came from expanding the project; it came from re-mobilizing a new crew on someone else's unfinished work and correcting some framing the original builder had left incomplete or below standard.
Where the extra $22,000 came from
- ▸Re-mobilization -- a new crew starting fresh on a partially-built site costs more than a continuous build would have
- ▸Correcting deficient work left by the original contractor before new work could safely proceed on top of it
- ▸None of it was scope creep -- the finished home is the same home originally contracted for
The insured mortgage itself, $395,200, had already been approved and committed against the original $400,000 as-complete value. Increasing that committed amount to cover the $22,000 gap would have meant resubmitting the file to the insurer: a fresh appraisal, a new loan-to-value calculation, and the delay of running an already-approved insured file back through underwriting a second time.
The numbers
The insured mortgage math itself never had to move. What changed was how the shortfall between the two contractors' numbers got covered.
| The insured self-build, unchanged throughout | Amount |
|---|---|
| As-complete contract value | $400,000 |
| Minimum down payment (5%) | −$20,000 |
| Base mortgage | $380,000 |
| CMHC premium -- 4.00% in the 90.01-95% LTV band, capitalized | +$15,200 |
| Total insured mortgage | $395,200 |
| Where the $22,000 shortfall came from | Figure |
|---|---|
| Remaining budget after $152,000 in draws (of the $380,000 base mortgage) | $228,000 |
| New contractor's quote to finish the same remaining scope | $250,000 |
| Shortfall -- funded in cash, not added to the mortgage | $22,000 |
The ratio math, never re-run
| Ratio check at the qualifying rate | Figure |
|---|---|
| Minimum qualifying rate on a 4.85% contract rate | 6.85% |
| Payment at the qualifying rate, 25 years | $2,732 |
| GDS (payment + $310 tax + $140 heat) ÷ $8,500 income | 37.4% |
| TDS (GDS numerator + $300 car loan) ÷ $8,500 income | 41.0% |
37.4% and 41.0% are the same figures the file was originally approved on -- because the mortgage amount never changed, the ratio math never needed re-running either.
The solution
A mortgage professional working a PEI insured construction file treated the builder's insolvency as a completion problem to solve outside the mortgage, not a reason to reopen it.
First, confirmed exactly what had and hadn't been paid. Reconciled the $152,000 in draws already released against what the original contract said should have been complete at that stage, so the new contractor was quoting on a clearly defined remaining scope, not a guess.
Second, priced the alternative to a cash top-up honestly. Increasing the insured mortgage by $22,000 would have meant a fresh appraisal, a new loan-to-value calculation, and resubmitting an already-approved file to the insurer -- weeks of delay against a family who needed the build finished.
Third, structured the cash top-up to flow alongside the existing draw schedule, not instead of it. The remaining insured holdback and draws still released against the new contractor's certified progress; the family's own $22,000 covered only the specific gap between the two contractors' numbers.
The outcome
The build finished under the new contractor, funded partly by the remaining insured draws and partly by the family's own $22,000, with the original $395,200 mortgage never re-underwritten. GDS settled at 37.4% and TDS at 41.0%, both inside CMHC's maximums -- exactly where the file already stood before the builder failed.
Prince Edward Island's real property transfer tax rate is currently under dispute between the statute's stated rate and an announced but unconfirmed increase, so no dollar transfer-tax figure is quoted for this file; confirm the applicable rate with the closing lawyer.
What to take from this file
- 01A builder's insolvency is a completion problem, not automatically a mortgage problem. If the insured amount doesn't need to change, the file doesn't need to go back to the insurer.
- 02A new contractor's quote to finish someone else's unfinished work is rarely just the leftover line items. Re-mobilization and correcting deficient work both cost real money beyond the original remaining budget.
- 03Weigh a cash top-up against a mortgage increase honestly. Re-underwriting an already-approved insured file costs time most families in this position don't have to spare.
- 04Reconcile draws released against contracted progress before pricing anything. The new contractor needs a clearly defined remaining scope, not a guess at what's left.
- 05Keep the insured draw schedule running alongside a cash top-up, not replaced by it. The family's own money covered only the specific gap; the lender's remaining draws still did the rest of the job.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸CMHC — Purchase (Mortgage Loan Insurance) — default-insurance premium schedule by LTV band (25-year amortization).
- ▸CMHC — CMHC Home Start — minimum down payment tiers (5%/10%) and the $1.5M insured price cap.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸4.85% contract rate — rates move daily; not a quote.
- ▸the new GC's quote — one contractor's repricing of the remaining scope; not a published cost-overrun benchmark.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.