The client
A couple in Kawartha Lakes separated after building a small rental portfolio together, with the keeping spouse refinancing the property being kept to pay the departing spouse a $195,000 equity share.
Property being kept
$180,000 existing first mortgage @ 4.60%
Buyout owed to departing spouse
$195,000
Set by the separation agreement
Keeping spouse's income alone
$7,900/month
Other debt
$255/mo car loan
The problem
A lender financing several properties for the same couple will sometimes attach a covenant to the whole relationship rather than to any one property -- a minimum combined net worth across every borrower and every mortgaged property together, tested once at origination and again whenever the borrowing group itself changes.
Why the first lender declined the buyout refinance
- ▸The original lender had approved the whole portfolio against a covenant requiring a minimum combined net worth across both spouses together
- ▸The buyout removed the departing spouse -- and their share of that combined net worth -- from the borrowing group entirely
- ▸The covenant had only ever passed in combination; on the keeping spouse alone, even with strong personal numbers on this one property, it no longer did
The keeping spouse's own income and equity on this property were never in doubt. The covenant that had approved the portfolio was written for two people, not one.
The numbers
Once the buyout moved to a lender that underwrites a single property on its own income and equity, qualifying it was straightforward.
| Refinancing the property being kept | Amount |
|---|---|
| Existing first mortgage | $180,000 |
| Buyout owed to departing spouse | $195,000 |
| New refinance balance | $375,000 |
| Total debt service | Figure |
|---|---|
| Payment at the qualifying rate (6.95%), 25 years | $2,615/mo |
| Property tax | $330/mo |
| Heat (lender estimate) | $125/mo |
| Car loan | $255/mo |
| Total debt service | 42.1% |
42.1% clears inside range on the keeping spouse's income alone -- close enough to a typical ceiling that it underlines how little room a portfolio-wide covenant leaves once one borrower's share of the underlying net worth is removed, a dynamic home-price data suggests is increasingly common as portfolio values climb faster than any one owner's individual equity.
The solution
A mortgage agent licensed under Ontario's Mortgage Brokerages, Lenders and Administrators Act recognized the decline as a covenant problem, not a ratio problem, before spending time trying to fix numbers that were never the issue.
First, confirmed directly with the original lender that the covenant was written against the combined portfolio relationship, not against this property individually, and that no version of the buyout would leave it satisfied once the departing spouse's share left the group.
Second, moved the buyout refinance to a second lender whose own underwriting assesses each mortgaged property on its own income and equity, without a portfolio-wide net-worth test attached to the relationship at all.
Third, qualified the file entirely on the keeping spouse's own income and this one property's own equity, exactly the numbers the original covenant had never actually tested on their own.
The outcome
The buyout refinance funded at 4.95%, with total debt service at 42.1% on the keeping spouse's income alone, once the file moved to a lender whose own covenant policy actually fit a single-owner property.
Because this is an uninsured buyout refinance, CMHC's ratio maximums do not apply directly; the 42.1% figure is informational.
What to take from this file
- 01A lender's covenant can be written against a whole portfolio relationship, not any single mortgaged property. Read the original loan documents for a combined-net-worth or portfolio-wide test before assuming a buyout is a simple, one-property refinance.
- 02Removing one owner from a jointly financed portfolio can break a covenant that only ever passed in combination, even when the remaining owner's own numbers are individually strong.
- 03A covenant decline is not a ratio decline. Recognize which one you are looking at before trying to fix income or equity that was never actually the problem.
- 04A second lender that underwrites one property at a time can approve exactly the file a portfolio-covenant lender cannot. The keeping spouse's own numbers were always sufficient -- they just needed a lender willing to test them alone.
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:
- ▸4.95% contract rate — rates move daily; not a quote.
- ▸the combined-net-worth covenant itself — each lender sets its own covenant policy for a multi-property borrowing relationship; requiring net worth across both spouses together is one lender's own practice, not a universal rule.
- ▸the $195,000 buyout figure — set by this couple's own separation agreement; every buyout is negotiated individually, not by formula.
- ▸the TDS figure — this is an uninsured buyout refinance, so there is no CMHC ratio ceiling -- the number is informational.
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.