From the family note to an institutional lender

The private note did what it was meant to do — it got the family into the home. But interest-only means the $975-a-month payment never touches the $180,000 balance, and a note with no fixed term leaves no scheduled path to ever paying it off.

Three years on, the borrower’s own T4 employment and credit history are strong enough to qualify with an institutional lender on their own — the alternative-credit case the family note substituted for is no longer needed.

At 52.9% LTV, an institutional refinance here is comfortably uninsured — well under the 80% threshold where default insurance would even be a question.

Because this is a new mortgage to a new lender — not a straight switch between two federally regulated institutions at renewal — the full minimum qualifying rate applies. There is no exemption path for a private-to-institutional payout, even though the balance and the borrower are unchanged from three years ago.

TDS comes to 25.5% against combined income — comfortably serviceable, though on this uninsured file it is informational rather than a pass/fail line against a regulatory ceiling.

A courtier hypothécaire licensed with Quebec’s AMF packaged the file as a standard payout refinance: three years of T4s and NOAs, a fresh appraisal supporting the $340,000 value, and a payout statement from the parents confirming the exact balance owing on the private note.

The exit strategy here was always the plan, not an afterthought — private and inter-family lending works when everyone understands from the start how the borrower gets to an institutional lender eventually, the same principle our piece on why every private deal needs an exit strategy sets out for arm’s-length private deals too.

Funded: the institutional lender paid out the private note in full, and the family’s private mortgage was discharged from title. The old interest-only note’s $975 payment became a $1,046 amortizing one — $71 more a month, but for the first time actually reducing the balance rather than holding it flat.

A national arrears rate this low is part of why lenders are comfortable underwriting a well-documented inter-family payout on its own merits, without treating the private history as a mark against the file.

• 01Interest-only never builds equity on its own. A flat $975-a-month payment for three years reduced the $180,000 balance by exactly nothing.
• 02There is no MQR exemption for a private-to-institutional payout. Only a straight switch between two federally regulated lenders at renewal qualifies — a new mortgage from a new lender is tested at the full stress rate regardless of how long-standing the underlying arrangement was.
• 03Document the private note like any other liability being discharged. A payout statement from the family, not just a verbal confirmation, is what a lender and the file both need.
• 04A higher payment isn’t always the worse outcome. $71 more a month bought the borrower an amortizing mortgage instead of a flat one that never moved.