The client
A household buying in Miramichi, New Brunswick, with steady combined income and a federal student loan that had gone into active default years earlier, after a stretch of unemployment. The loan, not the household's current finances, was the obstacle.
Borrowers
Combined income $6,600/month
Stable T4 employment, no recent gaps
Purchase
$250,000, Miramichi
Property tax $220/mo; lender heat estimate $110/mo
Federal student loan
$22,000 balance, in active default
Defaulted years earlier during a stretch of unemployment
Down payment
$12,500 — 5%, the minimum at this price
Price is under the $500,000 tier boundary
Other debt
$240/mo car loan
the only other item on either bureau file
The problem
A federal student loan carried in good standing is simply one more monthly payment inside the debt-service math. A federal student loan in active default is a different category of problem entirely — most lenders won't underwrite ratios on a file with a defaulted loan on it at all, regardless of income, until the loan itself is restored to good standing.
Default status vs. a payment problem
- ▸The loan: $22,000, in active default, unpaid for an extended period
- ▸The household's income and every other debt: clean, verified, no other issues
- ▸No lender's underwriting desk would review the file's ratios while the loan sat in default — not a decline on the numbers, but a refusal to even open the ratio question
This is the distinction worth getting exactly right, and it's exactly the distinction covered in how student loans, in and out of repayment, read differently at each stage: a payment problem is solved with a payment plan and a ratio calculation, while a default-status problem has to be resolved as a status question first — the ratios simply don't get considered until that happens.
The numbers
Once the loan was restored to good standing, the file's ratios were exactly what a clean household income would suggest — the rehabilitation process, not the mortgage math, was where the actual work happened.
| The insured loan, once eligible | Amount |
|---|---|
| Purchase price | $250,000 |
| Down payment (5%, the minimum at this price) | −$12,500 |
| Base mortgage | $237,500 |
| CMHC premium at 4.0% (90.01–95% LTV band) | +$9,500 |
| Total insured mortgage | $247,000 |
| 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 | $1,707/mo |
| GDS (payment + $220 tax + $110 heat) ÷ $6,600 income | 30.9% |
| TDS (GDS numerator + $240 car loan + $210 rehabilitation payment) ÷ $6,600 income | 37.7% |
Even with the loan's new $210/mo rehabilitation payment counted in full, TDS settled comfortably inside CMHC's 44% maximum. The default status, not the loan's ongoing cost, had been the entire eligibility problem.
The solution
A mortgage broker licensed under New Brunswick's Financial and Consumer Services Commission (FCNB) walked the applicant through the loan's rehabilitation before approaching any lender with the file.
First, contacted the loan's servicer directly to confirm the exact steps to rehabilitation. Rehabilitating a defaulted federal student loan restores it to good standing under a documented new payment arrangement — it is a specific, formal process, not simply resuming payments unilaterally.
Second, secured written confirmation of the restored good standing and the new fixed $210/mo payment before submitting the file to any lender. A verbal assurance that rehabilitation was underway would not have been enough — a defaulted loan's file gets declined on the status alone, no matter how good the plan sounds.
Third, only then built the ratio case, folding the new rehabilitation payment into total debt service alongside the household's other obligations, once there was an eligible file to build a ratio case around at all.
The outcome
With the loan restored to good standing and its new $210/mo payment documented, the file qualified insured at $247,000, TDS 37.7%, on eligibility that simply hadn't existed a few months earlier.
New Brunswick's flat 1% Real Property Transfer Tax on the $250,000 purchase came to $2,500 — a routine closing cost, confirmed with the lawyer's trust ledger.
What to take from this file
- 01A defaulted loan is an eligibility problem, not a ratio problem. No lender reviewed this file's math until the default status itself was resolved.
- 02Rehabilitation is a formal, documented process, not a decision to start paying again. The servicer's written confirmation of restored good standing is what actually changes the file's eligibility.
- 03Don't submit on a rehabilitation plan that's only verbally underway. A lender sees the default status on the bureau regardless of what the applicant says is happening behind the scenes.
- 04Once eligible, the ratio math is ordinary. The rehabilitated loan's $210/mo payment folded into TDS like any other debt, with real room to spare.
- 05Understand why the default happened, not just how to fix it. A stretch of unemployment explains this file's history without suggesting a pattern likely to repeat.
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.
- ▸Real Property Transfer Tax Act, S.N.B. (via laws.gnb.ca) — New Brunswick's flat 1% real property transfer tax.
- ▸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 $210/mo rehabilitation payment — rehabilitation payment amounts are negotiated per file with the loan servicer, not a published figure.
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.