The client
A homeowner in St. John’s, Newfoundland and Labrador needed $20,000 to clear high-interest credit-card debt and could not get there through a straightforward refinance of the existing first mortgage alone. The broker arranged a small private second mortgage behind the existing first, and the private lender's draft commitment letter arrived a few days later.
Existing first mortgage
$172,000 remaining, 23 years left
Staying in place, unchanged by this transaction
Private second requested
$20,000
To clear high-interest credit-card debt
Private lender's draft rate
19.99%, interest-only
Illustrative — on its own, well inside 35%
Private lender's draft fees
$2,500 lender fee + $1,500 broker/admin fee
Due on funding, on top of the stated rate
Term
1 year
Short term, so fees carry more weight per year
The problem
Read on its own, 19.99% is nowhere near a problem — it sits well under any interest-rate cap Canada has ever set. The criminal rate of interest under the Criminal Code, however, is not measured on the stated rate alone.
What the Criminal Code actually caps
- ▸Effective January 1, 2025, Parliament lowered the criminal rate of interest from 60% effective annual rate (roughly 48% APR) to a flat 35% APR — for any agreement entered into on or after that date.
- ▸Agreements signed before January 1, 2025 that complied with the old 60% EAR ceiling stay valid under the old rule; the new 35% cap governs new agreements only, regardless of how old the underlying debt being consolidated is.
- ▸The Code's definition of ‘interest’ for this purpose is broad — it is not just the stated rate, but most fees and charges tied to the loan, spread over its term.
This second mortgage was a brand-new agreement, being signed in 2026 — a full year after the new cap took effect. On the numbers as first drafted, the $2,500 lender fee and $1,500 broker fee, spread over a 1-year term on a $20,000 loan, pushed the true annual cost of borrowing to roughly 40% once added to the 19.99% stated rate — a simplified, illustrative estimate, but comfortably past 35% either way. A private lender whose paperwork template predates the 2025 change can produce exactly this: a face rate that looks fine, and a total cost that is not.
The numbers
The existing first mortgage was not being touched at all — it kept its own rate and payment. Only the new private second needed to be re-priced.
| The private second, before and after repricing | Amount |
|---|---|
| Existing first mortgage payment (unchanged) | $983/mo |
| Private second, as first drafted (19.99%, interest-only) | $333/mo |
| Combined monthly obligation, as first drafted | $1,316/mo |
| Private second, repriced (16.99%, interest-only) | $283/mo |
| Combined monthly obligation, repriced | $1,266/mo |
| Illustrative all-in cost of borrowing | As drafted | Repriced |
|---|---|---|
| Stated interest rate | 19.99% | 16.99% |
| Lender + broker/admin fees | $4,000 | $1,500 (broker fee only) |
| Simplified annualized cost, rate plus fees over the term | ~40% | ~24% |
These fee-inclusive percentages are a simplified illustration, not the Criminal Code's precise prescribed calculation, which is more technical. What the simplified version shows clearly enough is the direction that mattered: as drafted, the file was headed toward an agreement that would provide for interest at a criminal rate — itself an offence, and a contract a court could refuse to enforce beyond the legal cap. Dropping the $2,500 lender fee and trimming the rate brought the same $20,000, 1-year loan back under the line.
The solution
A mortgage broker registered under Newfoundland and Labrador's Superintendent of Mortgage Brokerages and Mortgage Brokers, appointed under the province's 2023 Mortgage Brokerages and Brokers Act, treated the commitment letter as a compliance document to check, not just a rate to shop.
First, added up the full cost of borrowing, not just the headline rate. The $2,500 lender fee and $1,500 broker/admin fee, spread over the 1-year term, mattered as much to the calculation as the stated 19.99%.
Second, confirmed the agreement's own signing date governed, not the age of the underlying debt. The credit-card balances being cleared were years old; the private second itself was a brand-new 2026 agreement, squarely inside the post-2025 35% cap.
Third, took the specific, fee-inclusive figure back to the private lender and asked for a repriced commitment before the client signed anything, rather than flagging a vague concern and hoping the lender adjusted on its own.
The outcome
The private lender agreed to drop the $2,500 lender fee and lower the rate to 16.99%, bringing the simplified all-in cost of the $20,000 second down to roughly 24% — comfortably under the 35% cap. The credit cards closed to zero at funding.
Newfoundland and Labrador has no verified land transfer tax to budget here; this was a refinance-style private second, not a purchase, so no transfer tax question arose at all.
What to take from this file
- 01The criminal rate of interest looks at the full cost of borrowing, not the stated rate alone. Fees spread over a short term can turn an innocuous-looking rate into an illegal one.
- 02The cap that applies is the one in force when the agreement is signed. A pre-2025 loan is grandfathered at the old ceiling; a new 2026 agreement is not, no matter how old the debt behind it is.
- 03A private lender's paperwork can be stale without anyone intending it. A rate sheet or fee structure built before January 2025 can quietly produce an agreement that is no longer legal to sign.
- 04Do the cost-of-borrowing math before the client signs, not after. An unenforceable rate is a real risk to the client and the brokerage, not just an academic compliance point.
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.
- ▸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:
- ▸19.99% draft rate, 16.99% repriced rate, and the fee amounts — private-lender rates and fees vary by file and are negotiated, not published.
- ▸the ~40% and ~24% all-in cost figures — simplified annualized illustrations of rate plus fees over the term, not the Criminal Code's precise prescribed calculation method.
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.