The client
First-time buyers under an insured new-construction contract in Prince Edward Island, totalling $465,000 at 10% down, with combined income of $9,200 a month. Like most construction files, the mortgage was structured to release in stages as the builder completed defined milestones, with the lender's own inspector confirming each stage before the next draw went out.
Borrowers
Combined income $9,200/month
First-time buyers, both salaried
Total contract price
$465,000, insured at 10% down
Land and construction financed as one insured mortgage
Construction budget
$310,000
The build-only portion within the total contract
Other debt
$340/mo car loan
the only other item on the bureau
The blocker
Draws invoiced ahead of work actually done
surfaced only when the builder went insolvent
The problem
Two draws in, the builder's invoices told a consistent story: steady progress, each stage billed and paid on schedule. Then the builder filed for insolvency and stopped answering calls. Before releasing anything further, the lender ordered an independent as-complete inspection — and the inspection told a different story than the invoices had.
What the invoices said, versus what was actually built
- ▸Builder's invoices, paid to date: 55% of the $310,000 construction budget, or $170,500
- ▸Independent as-complete inspection, ordered after the insolvency: only 40% actually built, worth $124,000
- ▸Gap between what was paid and what the work on site supports: $46,500
A construction draw that goes wrong mid-build is rarely about the mortgage itself — it is almost always about the gap between what a builder says is done and what an inspector, standing on the site, can actually confirm. That gap does not close on its own once a builder disappears; someone has to pay for it before the next stage can start.
The numbers
The insured mortgage structure never changed. What changed was who covered the $46,500 the invoices had gotten ahead of the actual work — a question construction financing in Canada, tracked nationally through residential construction investment data, runs into on a meaningful share of multi-draw files.
| The insured construction mortgage | Amount |
|---|---|
| Total contract price | $465,000 |
| Down payment (10%) | −$46,500 |
| Base mortgage | $418,500 |
| CMHC premium at 3.10% (85.01–90% LTV band) | +$12,974 |
| Total insured mortgage | $431,474 |
| Draws vs. actual work | Dollar amount |
|---|---|
| Draws invoiced and paid (55% of $310,000 budget) | $170,500 |
| Value confirmed by the independent as-complete inspection (40%) | $124,000 |
| Overpayment gap the buyers had to cover | $46,500 |
The $46,500 gap did not change the size of the insured mortgage. It changed who paid for the remaining construction mortgage's completion: rather than the lender advancing beyond the original $431,474 commitment, the buyers funded the gap themselves so the loan-to-value the file had been approved at never moved.
The ratios, confirmed unaffected
| Qualifying at 6.89% (4.89% contract + 2%) | Figure |
|---|---|
| Payment on $431,474, 25 years | $2,993/mo |
| GDS (payment + $310 tax + $140 heat) ÷ $9,200 income | 37.4% |
| TDS (GDS numerator + $340 car loan) ÷ $9,200 income | 41.1% |
The solution
A mortgage broker serving Prince Edward Island — where no dedicated mortgage-broker licensing regime exists, per the province's regulatory landscape — treated the re-appraisal as the whole file, not a delay to work around.
First, insisted on an independent inspection before anything else moved. Not a report from the insolvent builder's own site super, and not a rough estimate over the phone — a third-party as-complete appraisal, the same kind of check that sits behind every progress-advance a lender releases on a build.
Second, kept the total loan commitment exactly where it was approved. The lender's original $431,474 ceiling did not move because a builder overstated progress; the broker made clear from the outset that any shortfall between invoiced draws and confirmed work was the buyers' and the builder's problem to solve, not grounds to ask the lender for more.
Third, lined up a replacement general contractor before asking for the next draw. A signed contract with a new builder, priced against the confirmed 40% starting point rather than the disputed 55%, gave the lender a credible plan to finish the home within the existing budget.
The outcome
The next draw released against the confirmed 40% figure, the buyers covered the $46,500 gap from savings, and a new general contractor finished the home within the original $431,474 loan commitment. GDS settled at 37.4% and TDS at 41.1%, both comfortably inside CMHC's maximums.
Because the total insured mortgage never changed, no new default-insurance premium was payable and no fresh underwriting of income or ratios was required — the fix was entirely on the construction side of the file.
What to take from this file
- 01An invoiced percentage is a claim, not a fact. Only an independent as-complete inspection tells a lender, or a broker, what is actually built.
- 02A builder's insolvency does not automatically enlarge the loan. The lender's approved commitment is the ceiling regardless of who is left to finish the work.
- 03A gap between draws paid and work confirmed has to land somewhere. Here it landed on the buyers, by choice, rather than on a renegotiated mortgage.
- 04Lock in the replacement contractor before requesting the next draw. A lender wants a credible finish plan, not just a diagnosis of what went wrong.
- 05Ratios and construction risk are separate problems. This file's GDS and TDS were never in question; the entire fix happened on the build side.
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:
- ▸4.89% contract rate — rates move daily; not a quote.
- ▸the 55% invoiced / 40% confirmed progress split — a single anonymized site-inspection outcome, not a rule; every construction file gets its own independent as-complete measure.
- ▸the standard 4-draw milestone schedule — draw schedules and holdback triggers are set by each lender's own construction-mortgage program.
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.