The client
A homeowner in London has a $310,000 first mortgage and a $60,000 private collateral charge second mortgage, from a private lender, and wants to exit to an A-lender refinance.
First mortgage
$310,000
Existing balance, unaffected
Private second (collateral charge)
$60,000
The mortgage advance the borrower expected to pay
Separate personal LOC
$14,000
Same private lender, same collateral charge
Total secured by the charge
$74,000
What actually had to be retired
The problem
A collateral charge is registered for a stated maximum amount, but what it actually secures is written into its own terms -- and this one was drafted to secure 'all present and future indebtedness' to the private lender, not just the specific $60,000 mortgage advance. The borrower had since taken a separate, smaller personal line of credit from that same lender, and never connected the two.
What the payout statement actually showed
- ▸The $60,000 mortgage advance the borrower always understood the collateral charge secured
- ▸A separate $14,000 personal line of credit, taken later, from the same private lender
- ▸Because the charge's own wording covers all indebtedness to that lender, the LOC was secured by the exact same registration, whether the borrower realized it or not
This is not the same problem as a HELOC riding behind a collateral first mortgage from the SAME lender -- that's an expected feature of a collateral charge. The surprise here was that a completely separate credit product, applied for later and never discussed as connected to the mortgage, was pulled into the same charge automatically.
The numbers
The refinance had to be sized to what the collateral charge actually secured, not to what the borrower assumed it secured.
| Sizing the refinance to the full secured amount | Amount |
|---|---|
| Existing first mortgage | $310,000 |
| Private second mortgage advance | $60,000 |
| Separate personal LOC, same collateral charge | $14,000 |
| Total secured by the collateral charge | $74,000 |
| New consolidated refinance | $384,000 |
| Qualifying the refinance | Figure |
|---|---|
| Minimum qualifying rate on a 5.00% contract rate | 7.00% |
| Qualifying payment, 25 years | $2,690/mo |
| Actual contract payment, 25 years | $2,233/mo |
| Total debt service | 39.3% |
Total debt service on the $384,000 consolidated balance comes to 39.3% of the household's income -- informational only, since this is an uninsured refinance with no CMHC ratio ceiling. The number that mattered here was the $74,000 the collateral charge secured, not the $60,000 the borrower had budgeted the exit around.
The solution
A mortgage broker treated the payout statement itself as the authoritative document, not the borrower's own understanding of what was owed.
First, requested a full, itemized payout statement before sizing the refinance at all, rather than accepting the borrower's assumption that only the $60,000 mortgage advance needed to be paid.
Second, confirmed the $14,000 LOC balance directly with the private lender and obtained written confirmation that it was secured by the same collateral charge as the mortgage.
Third, sized the new mortgage to the full $74,000 secured amount, not the $60,000 the borrower expected, avoiding a shortfall at closing that would have left the collateral charge undischarged.
The outcome
The consolidated $384,000 refinance funded at 5.00%, retiring both balances secured by the collateral charge and clearing a registerable discharge, with total debt service at 39.3%.
What a specific private collateral charge secures is written into that note's own wording -- every private lender drafts this individually, and the all-indebtedness scope here is not a general rule.
What to take from this file
- 01A collateral charge can secure more than the loan it was arranged for. 'All present and future indebtedness' wording pulls in later credit products from the same lender automatically.
- 02Always request a full, itemized payout statement before sizing an exit refinance. The borrower's own understanding of what's owed is not the authoritative number.
- 03A separate credit product from the same private lender is not automatically separate from the mortgage. Ask directly whether anything else is secured by the same charge.
- 04Sizing the refinance short of the true secured amount leaves the charge undischarged. That is a closing-day problem, not a paperwork inconvenience.
- 05This is a different mechanic from a HELOC riding behind a collateral first from the same lender. That is expected; a separate, later, unrelated credit product being caught by the same charge is the surprise.
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:
- ▸5.00% contract rate — rates move daily; not a quote.
- ▸what a specific private collateral charge secures — every private note and its collateral-charge wording is drafted individually; the all-indebtedness scope here is not a general rule.
- ▸the total debt service figure — this file is an uninsured 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.