The client
A homeowner in Kentville, Nova Scotia refinancing an existing mortgage, with a secured line of credit sitting almost untouched against its own limit.
Borrowers
Combined income $6,000/month
Both salaried
Existing mortgage
$210,000 balance
Refinanced alongside the HELOC payout
Secured line of credit
$18,000 owing on a $60,000 limit
Barely drawn; interest-only actual payment
Other debt
$290/mo car loan
unchanged by the refinance
The problem
A home equity line of credit's actual monthly cost is whatever interest accrues on the balance owing — on $18,000, that's a modest figure. The first lender's policy, though, doesn't look at the balance at all: it benchmarks any open HELOC at 3% of its credit limit, treating the account as if it could be drawn to the maximum at any moment.
What the benchmark actually counted
- ▸HELOC limit: $60,000
- ▸Benchmarked monthly payment (3% of the limit): $1,800/mo
- ▸Actual balance owing: just $18,000 — a fraction of what the benchmark assumed
With the benchmark counted alongside the new mortgage payment, tax, heat and the car loan, total debt service reached 66.7% — a figure that had nothing to do with how the household had actually used the credit line, well below what HELOC balances across Canada typically run at this credit-limit size, and everything to do with how large a limit it happened to carry.
The numbers
The refinance itself never changed size, whether or not the HELOC stayed open.
| Rolling the HELOC into the refinance | Amount |
|---|---|
| Existing mortgage balance | $210,000 |
| HELOC balance paid out through the refinance | +$18,000 |
| New mortgage balance | $228,000 |
| New contract rate | 4.55% |
| Minimum qualifying rate (greater of contract + 2% or 5.25%) | 6.55% |
| Total debt service | HELOC left open | HELOC paid out and closed |
|---|---|---|
| Payment at the qualifying rate, 25 years | $1,534 | $1,534 |
| Tax and heat | $380 | $380 |
| Car loan | $290 | $290 |
| HELOC benchmark (3% of the $60,000 limit) | $1,800 | — |
| Total debt service | 66.7% ✗ | 36.7% ✓ |
The $1,534 refinance payment covers both the existing mortgage and the HELOC's $18,000 balance — the benchmark disappears only because the account itself no longer exists, not because the balance was paid down. A HELOC paid to zero but left open would still carry the same $1,800 total debt service benchmark on many lenders' policies.
The solution
A Nova Scotia mortgage broker treated the HELOC's benchmark, not the household's actual usage, as the number that needed fixing.
First, confirmed the first lender's exact benchmark policy. 3% of the limit, not the balance and not the actual interest-only payment — a policy some lenders apply to any open revolving credit regardless of how lightly it's drawn.
Second, sized the refinance to pay the HELOC out in full, rather than proposing a partial paydown that would have left the account open and the benchmark still counting, a more direct route than simply weighing a HELOC against a refinance would have suggested on a lighter file.
Third, had the HELOC formally closed as a condition of funding, with written confirmation from the credit-line's lender that the account no longer exists — not merely a zero balance that could be redrawn.
The outcome
The refinance funded uninsured at $228,000, the HELOC was paid out and formally closed at the same closing, and total debt service settled at 36.7% — comfortably inside the new lender's own comfort line, with the phantom $1,800 gone from the file entirely.
Because this is a refinance of an existing owned property, no transfer tax applied; closing costs were legal fees and standard adjustments only.
What to take from this file
- 01A HELOC's benchmark can be tied to its limit, not its balance. A lightly-used $60,000 line of credit can cost more on paper than a fully drawn $18,000 loan would.
- 02Closing the account removes the benchmark; paying it down does not. A zero balance on an open HELOC can still be benchmarked at the same limit-based figure.
- 03Confirm the exact benchmark policy before proposing a fix. Some lenders use the limit, some the balance, some the actual payment — the difference here was $1,800 a month.
- 04An uninsured refinance isn't bound by CMHC's 44% cap, but lenders still watch a similar ceiling. 36.7% cleared it with real room.
- 05A revolving credit line's real cost and its underwriting cost can be very different numbers. Both are worth knowing before a client is surprised by either one.
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.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸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:
- ▸4.55% contract rate — rates move daily; not a quote.
- ▸the 3%-of-limit HELOC benchmark — each lender sets its own policy for benchmarking a revolving line of credit; some use the balance or actual payment instead.
- ▸$260/mo tax and $120/mo heat estimate — lender-standard estimates, not rules.
- ▸the 44% comfort reference — this file is uninsured; 44% is the new lender's own internal ceiling, not a regulatory cap.
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.