The client
A homeowner in Moose Jaw arranged a $150,000 private first mortgage through an acquaintance who described it, in good faith, as an open mortgage — repayable anytime, with no prepayment penalty. When the household approached a broker to exit to an A-lender, that description was the only thing anyone had actually checked.
Private mortgage balance
$150,000
8.75% interest-only, per the arranger's description
Assumed exit cost
$0
Per the verbal description of an ‘open’ mortgage
Actual commitment letter
Closed term
Three months’ interest discharge penalty clause
Household income
$6,000/mo
Other debt $310/mo
New lender’s offer
5.05% fixed
Illustrative, 25-year amortization
The problem
Private mortgage terms are set individually, per file, by whoever arranges them — there is no standard form guaranteeing that a mortgage described as open actually is one. The only way to know for certain is to read the registered charge and the commitment letter themselves, not the summary someone gives verbally.
What the actual documents said
- ▸Registered charge and commitment letter both specify a closed term
- ▸Discharge penalty clause: three months’ interest on the $150,000 balance
- ▸Actual penalty: $3,282 — not the $0 the borrower expected
Acting on the verbal description alone — timing the exit as if no penalty applied — would have meant discovering the real cost only once the discharge statement arrived, with no room left to plan around it. Every private deal needs a clear exit strategy defined before the money moves, and reading the actual documents rather than a summary of them is the first step of that plan.
The numbers
The penalty itself was priced first, before anything else about the exit was finalized, so the household could decide how to pay it with full information.
| Pricing the actual discharge penalty | Amount |
|---|---|
| Interest-only payment at the private rate | 1,094/mo |
| Discharge penalty (three months’ interest) | $3,282 |
| Rate & payments, the refinance | Figure |
|---|---|
| Contract rate, new A-lender (illustrative, not a quote) | 5.05% |
| Minimum qualifying rate | 7.05% |
| Monthly P&I at the qualifying rate | 1,055 |
| Monthly P&I at the contract rate | 877 |
| TDS on the refinance | Figure |
|---|---|
| Housing costs (P&I + tax + heat) | 1,390 |
| TDS | 28.3% |
The $150,000 balance itself never changed — only the penalty, paid separately in cash, was new information.
The solution
An FCAA-licensed Saskatchewan mortgage broker went to the primary documents before pricing anything.
First, obtained and read the actual registered charge and commitment letter, rather than relying on the borrower's or the original arranger's description of the terms.
Second, confirmed the $3,282 penalty amount with the private lender directly, in writing, before the household made any decision about timing.
Third, had the household pay the penalty from savings rather than finance it into the new mortgage, keeping the new loan sized to the balance alone.
The outcome
The exit closed on the unchanged $150,000 balance at the new lender's rate, with TDS at 28.3% and the $3,282 penalty paid in cash, not rolled into the mortgage.
Saskatchewan's own mortgage-registration fee applies at closing, but the current fee schedule could not be independently verified, so no dollar figure is quoted here.
What to take from this file
- 01Read the actual mortgage instrument before pricing an exit. A verbal description of the terms — even given in good faith — is not a substitute for the registered charge.
- 02‘Open’ and ‘closed’ are specific, documented terms, not casual descriptions. The two carry very different exit costs.
- 03Private mortgage penalty clauses are negotiated per file. A three-months’-interest penalty is one common structure, not a universal rule.
- 04Confirm the exact penalty in writing before the client commits to a timeline. Discovering it at the discharge statement leaves no room to plan.
- 05Paying a penalty in cash keeps the new mortgage sized to the balance alone. Financing it in only grows what the new lender has to qualify.
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:
- ▸8.75% / 5.05% contract rates — rates move daily; neither is a quote.
- ▸the three-months’-interest penalty clause — private mortgage terms are negotiated per file; this is one common structure, not a universal one.
- ▸the 44% comfort reference — this file is uninsured, so there is no CMHC ratio ceiling -- 44% is a common internal comfort line, not a regulatory cap.
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.