The client
A homeowner in Hawkesbury carried a $240,000 first mortgage and a $58,000 private second with blended monthly payments, both to be consolidated into one new A-lender refinance.
First mortgage balance
$240,000
4.50%, 19 years remaining
Private second balance
$58,000
9.80%, blended monthly payments
Combined income
$7,400/month
Other debt
$235/mo car loan
The problem
Section 6 of the federal Interest Act requires a mortgage on real property with a blended-payment plan to contain a statement showing the principal and the interest rate, calculated yearly or half-yearly, not in advance. Without that statement, the Act says no interest whatever is chargeable, payable or recoverable on the loan -- and the private lender's own loan document never contained one.
What the borrower's lawyer found on review
- ▸The private second's loan document quoted a rate and a blended monthly payment, but never stated the required yearly-or-half-yearly equivalent
- ▸The Supreme Court affirmed this exact statutory bar in Krayzel Corp v Equitable Trust Co -- a missing s.6 statement zeroes the interest, full stop
- ▸The private lender's own payout statement nonetheless included $6,800 in accrued interest on top of the $58,000 principal
The private lender was not acting in bad faith. Its own loan document had simply never included a statement the federal Interest Act makes mandatory.
The numbers
Once the missing statement was confirmed, the payout figure itself was the easy part.
| Consolidating the first and the second | Amount |
|---|---|
| First mortgage balance | $240,000 |
| Private second principal (interest waived) | $58,000 |
| New consolidated balance | $298,000 |
| Total debt service | Before (both mortgages) | After (consolidated) |
|---|---|---|
| Mortgage payment | $1,563 | $2,069 |
| Property tax + heat | $410 | $410 |
| Private second, interest-only | $474 | -- |
| Car loan | $235 | $235 |
| Total debt service | 36.2% | 36.7% |
The consolidated payment itself is what moved total debt service from 36.2% to 36.7% -- both comfortably inside range for an uninsured file, and well below what mortgage arrears rate data suggests is a stressed file. The real saving in this file was the $6,800 in interest the private lender was never legally entitled to collect.
The solution
A mortgage agent licensed under Ontario's Mortgage Brokerages, Lenders and Administrators Act treated the private second's own loan document as a document to be checked against the Interest Act, not taken at face value.
First, had counsel review the loan document specifically for the s.6 statement -- the required principal amount and yearly-or-half-yearly equivalent rate -- and confirmed it was absent.
Second, cited the resulting statutory bar on interest, and the Supreme Court's own affirmation of it in Krayzel Corp v Equitable Trust Co, in a letter to the private lender ahead of payout.
Third, negotiated the payout down to principal only, giving the private lender a fast, certain close rather than a fight over a point it was very likely to lose.
The outcome
The consolidated refinance funded at 4.90%, the private second was discharged for principal only, and total debt service settled at 36.7%.
Because this file is uninsured, CMHC's ratio maximums do not apply directly; the 36.2% and 36.7% figures are informational, showing exactly what the consolidation itself changed.
What to take from this file
- 01A blended-payment mortgage on real property needs a specific Interest Act s.6 statement to charge any interest at all. Its absence is not a technicality -- it zeroes the interest entirely.
- 02Review a private lender's own loan document line by line before accepting its payout figure. A missing statutory disclosure can be worth thousands at exit.
- 03This is settled Supreme Court law, not a novel argument. Krayzel Corp v Equitable Trust Co gives a private lender every reason to negotiate rather than litigate.
- 04Not every private loan document is drafted to this standard. Check it on every file, not just the ones that look unusual.
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:
- ▸9.8% / 4.90% rates — rates move daily; neither is a quote.
- ▸the private second's missing rate statement — not every private loan document omits the Interest Act s.6 statement; this reflects one lender's own drafting, not a universal defect.
- ▸the TDS figures — this file is uninsured, so there is no CMHC ratio ceiling -- the numbers are 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.