The client
A homeowner in Saint-Georges whose parents had lent $95,000 toward the down payment years earlier — a handshake arrangement, tracked in a spreadsheet, with nothing registered against the property. It worked fine until the parents, now planning their own estate, wanted the loan documented properly: a real interest rate, a real repayment schedule, and a registered charge that would show up if anything happened to either side.
Home value
$370,000
Confirmed by a recent appraisal
Existing first mortgage
$180,000 balance
Conventional lender, 4.49% contract rate
Family loan
$95,000, unregistered
No paper trail, no interest, no schedule — until now
Household income
$96,000 / year
$8,000 per month for the ratio math
Other debt
Car loan $300/mo
Unrelated to the family loan
Regulator
Courtier hypothécaire licensed by the AMF
Quebec's Autorité des marchés financiers
The problem
An unregistered family loan is, on paper, invisible to everyone except the two parties who agreed to it. No lender sees it in a title search, no lawyer can enforce it as a charge against the property, and if either side's circumstances changed — a parent's estate, a falling-out, a bankruptcy on either side — there was nothing recorded to show the $95,000 was ever a loan rather than a gift.
The parents' request to formalize it created a new question: registering a proper second-position hypothec behind the existing first mortgage was straightforward on its own, but the family also wanted an eventual, clean exit — a plan for the child to pay the parents back through ordinary refinancing, not an open-ended family arrangement with no end date.
The cost of leaving it informal
- ▸Two charges, tracked separately: $180,000 first mortgage plus $95,000 unregistered loan
- ▸Combined monthly cost before consolidation: $1,311 — a $995 first-mortgage payment plus a $316 interest-only payment on the family loan, once it was formalized at 3.99%
- ▸No registered security for the parents, and no fixed timeline for repayment, on either side of the arrangement
An informal loan with no fixed timeline is exactly the kind of arrangement that, left unaddressed, can drift toward Canada's mortgage arrears rate instead of resolving into a clean, documented exit.
The numbers
Formalizing the loan meant registering it as a second mortgage behind the existing first — a below-market rate reflecting the family relationship, but a real, interest-only payment and a real charge on title.
| The two charges, formalized | Amount |
|---|---|
| First mortgage balance | $180,000 |
| Family loan, registered as a second mortgage | $95,000 |
| Combined payout to consolidate | $275,000 |
| Monthly cost before consolidation | Figure |
|---|---|
| First mortgage P&I at 4.49% | $995 |
| Family second, interest-only at 3.99% | $316 |
| Combined monthly cost | $1,311 |
Consolidating into one A-lender refinance
Paying off both charges and adding $5,000 for discharge and notary costs produced a new mortgage of $280,000 — 75.7% of the $370,000 home value, safely inside the 80% ceiling that keeps a refinance uninsured.
| Rate & payments | Figure |
|---|---|
| Contract rate — A-lender (illustrative, not a quote) | 4.69% |
| Minimum qualifying rate — contract + 2% | 6.69% |
| Monthly P&I at the qualifying rate — the ratios run on this | $1,908 |
| Monthly P&I at the contract rate — what is actually paid | $1,579 |
| TDS after consolidation | Monthly |
|---|---|
| P&I at the qualifying rate | $1,908 |
| Property tax | $260 |
| Heat (lender-standard estimate) | $150 |
| Car loan | $300 |
| Total $2,618 ÷ income $8,000 → TDS 32.7% | ✓ |
The solution
A courtier hypothécaire licensed by the AMF handled the formalization and the exit as two connected steps, not one transaction.
First, had the family loan properly registered — a notarized second-position hypothec against the property, at a stated rate and payment, replacing the handshake with a document any lender or lawyer could actually read. The costs and disclosure obligations that come with formalizing a private charge this way are covered in private mortgage costs, in three buckets.
Second, requalified the homeowner for a consolidated A-lender refinance once the second mortgage had a defined balance and rate to pay out cleanly, rather than leaving it as an ongoing family arrangement with no fixed end.
Third, discharged both charges at the same closing, so the parents were repaid in full and released from the registered hypothec in one step. The general sequence for taking a private position back to institutional financing is the same one covered in private mortgage exit strategies.
The outcome & the closing math
Both charges were paid off in a single refinance, the parents were repaid in full with a documented paper trail behind them the whole time, and the homeowner carries one mortgage going forward instead of two informal ones.
This was a refinance, not a sale, so no transfer duty was triggered on either the formalization step or the consolidation — Quebec's welcome tax applies to a change in ownership, not to registering or discharging a mortgage charge against a property the owner already holds.
What to take from this file
- 01An unregistered family loan protects no one. Without a charge on title, the lender has nothing to point to and the family has no enforceable claim if circumstances change.
- 02Formalizing does not mean market pricing. A below-market family rate is fine — what matters is that it is documented, with a real payment and a registered position.
- 03A second mortgage behind an insured or conventional first still needs its own exit plan. This file's plan was a defined consolidation, not an indefinite family arrangement.
- 04Consolidate both charges at one closing, not in sequence. Discharging them together avoided a gap where either charge could be outstanding without the other's context.
- 05Keep the legal mechanics of a private charge generic. Enforcement and default remedies for a registered private mortgage are matters for the notary and the parties, not a fixed rule this file should state as settled.
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%.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸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:
- ▸3.99% below-market family rate — a negotiated family rate, not a market quote.
- ▸4.49% existing first mortgage rate and 4.69% A-lender refinance rate — illustrative, not quotes.
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.