Paid out but still on the hook

Discharging a private mortgage from title happens automatically once the payout funds move — the registered charge comes off, and the property is clean. A personal guarantee, though, is a separate contract between the guarantor and the private lender, with its own terms, and nothing about paying off the underlying debt automatically terminates it.

This distinction is easy to miss precisely because it feels intuitive that paying off a debt should end everyone's obligation attached to it. The difference between a co-signer and a guarantor matters here too — a guarantee is a backstop instrument, not a registered interest, and it does not clean itself up the way a discharged mortgage does.

The refinance math itself was straightforward once the guarantee question was set aside as its own, separate task.

Qualifying payment at 7.05% (5.05% contract + 2%) on $83,000 comes to $584/mo, for TDS of 19.6% against the borrower's own $6,100/mo income — well inside any lender's comfort range, since the loan-to-value is modest and the parent's income was never part of the borrower's own qualifying in the first place.

A mortgage broker handling the exit made the guarantee release a condition of funding, not a follow-up item.

First, asked the private lender directly whether a personal guarantee existed on the file. It was not volunteered in the payout statement, which addressed only the registered mortgage balance.

Second, required a written release of guarantee from the private lender as a condition of the new mortgage funding, confirming in plain terms that the parent's obligation ended concurrently with the payout.

Third, had the release reviewed before the payout proceeds moved, not promised for after closing — a promise to release a guarantee later is worth far less than a signed release delivered before the money leaves the new lender's hands.

The private mortgage was paid out at $78,000, the new institutional mortgage funded at $83,000 with TDS at 19.6%, and the parent received a signed release confirming no remaining exposure — the guarantee ended when the debt did, on paper as well as in fact.

Because this file is an uninsured refinance, there is no CMHC ratio ceiling; the 19.6% TDS reflects this lender's own underwriting on a modest loan-to-value file.

• 01Paying off a private mortgage discharges the charge on title. It does not, by itself, end a guarantor's separate obligation. Those are two different instruments.
• 02Ask explicitly whether a guarantee exists on any private-mortgage exit. A payout statement addresses the registered balance; it will not necessarily mention a guarantee at all.
• 03Make the written release a condition of funding, not a promise for later. A release delivered after the money moves carries far less leverage than one required before.
• 04A guarantor's exposure is contractual, not tied to title. A parent with no ownership interest can still be personally on the hook until the guarantee itself is released.
• 05The borrower's own income, not the guarantor's, is what should be qualifying the exit refinance. If the guarantor's income is still needed to qualify, the exposure question runs deeper than a simple release.