The client
An applicant in Vancouver buying a $545,000 home at 10% down had, until recently, a clean credit score and $10,800/month of combined income comfortably ahead of what the file needed.
Purchase price
$545,000, Vancouver
10% down, insured
Combined income
$10,800/month
Co-signed auto loan
$16,400 remaining
A family member's loan the applicant co-signed years earlier; the family member defaulted
Other debt
$180/mo car loan, the applicant's own
The problem
A co-signer isn't a bystander on a loan -- they are fully, legally liable for it, exactly as though it were their own debt, the moment the primary borrower stops paying. That's a different exposure entirely from being an authorized user on someone else's credit card, where no personal liability exists at all.
What happened when the family member stopped paying
- ▸The applicant had co-signed a family member's auto loan years earlier, as a guarantor, in good faith
- ▸The family member stopped making payments, and the loan went to default
- ▸The full $16,400 remaining balance began reporting as delinquent on the applicant's OWN bureau file -- not a minimum payment, the whole balance -- pulling their score below CMHC's 600 floor
None of this was the applicant's own spending. It was, legally, still the applicant's own debt the moment the co-signed loan defaulted.
The numbers
The mortgage math itself was never in doubt. Confirming that made it clear the entire file turned on clearing the co-signed default, not on restructuring anything about the purchase.
| The insured purchase on its own merits | Amount |
|---|---|
| Base mortgage (90% of purchase price) | $490,500 |
| CMHC premium -- 3.10% in the 85.01-90% LTV band | +$15,206 |
| Total insured mortgage | $505,706 |
| Ratio check at the qualifying rate | Figure |
|---|---|
| Payment at the qualifying rate (6.85%), 25 years | $3,495/mo |
| GDS (payment + $300 tax + $125 heat) ÷ $10,800 income | 36.3% |
| TDS (GDS numerator + $180 car loan) ÷ $10,800 income | 38.0% |
36.3% and 38.0% sit well inside CMHC's 39% GDS and 44% TDS maximums. The mortgage itself was never going to be the reason this file struggled -- the co-signed default's damage to the credit score was.
The solution
A submortgage broker licensed under BC's Mortgage Brokers Act separated the applicant's own clean financial history from the contingent liability that had just crystallized against it.
First, confirmed exactly how the co-signed loan was reporting. Verified the full remaining balance, not just a minimum payment, was showing as delinquent -- the actual consequence of a co-signer's full legal liability once the primary borrower defaults.
Second, paid the balance out in full, from savings, outside the mortgage. Rather than financing the $16,400 into the purchase, cleared it directly to stop the delinquency from continuing to report.
Third, confirmed the account's status updated with the bureau before re-pulling credit. Waited for the paid-out balance to actually reflect on the file rather than assuming an instant update.
The outcome
The score recovered above the 600 floor once the paid-out balance reported, and the purchase funded insured at 36.3% GDS and 38.0% TDS on the applicant's own, otherwise clean, file.
Both ratios sit comfortably inside CMHC's 39% GDS and 44% TDS maximums; the co-signed default never threatened the mortgage math itself.
What to take from this file
- 01A co-signer is fully liable, not partially exposed. The moment a co-signed loan defaults, the full remaining balance becomes the co-signer's own debt on their own bureau file -- not a fraction of it.
- 02This is a different exposure from being an authorized user. An authorized user carries no personal liability at all; a co-signer or guarantor carries all of it, the instant the primary borrower stops paying.
- 03Paying out the balance directly protects the credit file faster than financing it into the mortgage. Clearing it from savings, outside the purchase, let the bureau update on its own timeline without adding to the loan amount.
- 04Confirm the mortgage math separately from the credit cleanup. Establishing early that the ratios were never the problem kept the file focused on the one thing that actually needed fixing.
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.
- ▸paying out the co-signed loan in full from savings, outside the mortgage — the exact payoff-and-reporting timeline varies by lender and by which bureau reports the account.
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.