The client
A homeowner in Belleville carried a $232,000 first mortgage and a private second, both to be consolidated into one new A-lender refinance.
First mortgage balance
$232,000
4.75%, 20 years remaining
Borrower's own payout estimate
$68,912
Assumed a standard 365-day year
Loan agreement's actual payout
$69,347
Per its own stated 360-day convention
Combined income
$7,900/month
The problem
An interest-only private second's payout depends entirely on how the loan agreement itself defines a day's interest. This borrower calculated their own estimate assuming a standard 365-day year, the convention their bank mortgage had always used -- but this private loan agreement's own written terms specified interest on a 360-day-year convention instead, a real and common private-lending practice.
Why the gap wasn't an error
- ▸The borrower's own 365-day estimate came to $68,912
- ▸The loan agreement's stated 360-day convention, applied per its own written terms, actually produces $69,347
- ▸The private lender had not miscalculated anything -- the higher figure was exactly what the signed agreement said it would be
The borrower assumed a discrepancy meant a mistake. Reading the agreement showed the higher number was the correct one.
The numbers
Once the correct payout figure was confirmed against the contract, consolidating it with the first mortgage was ordinary arithmetic.
| Two payout figures, one written contract | Amount |
|---|---|
| Borrower's own 365-day estimate | $68,912 |
| Loan agreement's actual 360-day figure | $69,347 |
| Gap the agreement's own wording resolved | $435 |
| Total debt service | Figure |
|---|---|
| New consolidated balance ($232,000 + $69,347 confirmed payout) | $301,347 |
| Payment at the qualifying rate (7.20%), 25 years | $2,148/mo |
| Property tax + heat | $450/mo |
| Total debt service, consolidated | 36.1% |
36.1% is informational -- this file is uninsured, so CMHC's ratio maximums do not apply directly. The $435 the agreement's own convention added was a rounding error next to the consolidation itself, but it had to be confirmed correct, not simply assumed to be a lender mistake.
The solution
A mortgage agent licensed under Ontario's Mortgage Brokerages, Lenders and Administrators Act read the private loan agreement's own interest clause before accepting either figure as final.
First, located the specific clause in the signed loan agreement governing how interest was calculated, confirming in writing that it specified a 360-day-year convention rather than the 365-day basis the borrower had assumed.
Second, recalculated the payout using the agreement's own stated method, confirming the $69,347 figure independently rather than accepting the private lender's payout statement on faith.
Third, sized the consolidation to the confirmed $69,347 figure, explaining to the borrower why the correct number was higher than their own estimate, rather than disputing a properly calculated, contractually valid figure.
The outcome
The consolidation funded at 5.20% on the confirmed $69,347 payout figure, with total debt service settling at 36.1%.
Because this file is uninsured, CMHC's ratio maximums do not apply directly; the 36.1% figure is informational, showing what the consolidation itself required once the correct payout was confirmed.
What to take from this file
- 01A 360-day-year interest convention is a real, contractually valid private-lending practice. A higher payout under one is not automatically a lender error.
- 02Read the loan agreement's own interest-calculation clause before disputing a payout figure. The agreement, not the borrower's assumption, is the source of truth.
- 03Recalculate the payout independently using the agreement's own stated method rather than accepting either the borrower's estimate or the lender's statement on faith.
- 04Explain a contractually correct but higher-than-expected figure clearly to the client. A number can be both a surprise and entirely correct.
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:
- ▸5.20% consolidation rate — rates move daily; not a quote.
- ▸the 360-day interest convention — this is one specific loan agreement's own written term; not every private lender uses a 360-day convention, and where one applies it is a matter of contract, not universal practice.
- ▸the TDS figure — this file is uninsured, 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.