The client
A household consolidating a $210,000 first mortgage and a $45,000 interest-only private second — the kind of financing that makes up a real share of Canada's mortgage market by lender type — with the second at maturity and being paid out in full rather than renewed, exiting to an A-lender at 5.15%.
First mortgage
$210,000 balance
Carried forward unchanged into the consolidation
Private second
$45,000, interest-only at 10.99%
At maturity, being paid out in full, not renewed
Discharge statement
Quoted $47,700 owing
$2,700 above the loan's actual interest-only principal
New A-lender rate
5.15%
Consolidating both into one uninsured mortgage
Household income
$7,200/month
Combined
The problem
An interest-only second mortgage's principal does not move between payments — every dollar paid is interest, and the $45,000 owed on day one is the same $45,000 owed at maturity, absent a lump-sum payment against it. That made the true payout figure the simplest number in the file to confirm, which is exactly why the discrepancy was easy to miss.
Where the extra $2,700 came from
- ▸The original commitment letter charged a renewal administration fee only if the loan rolled over past maturity
- ▸This loan was being paid out in full at maturity, not renewed
- ▸The discharge statement charged the fee anyway, quoting $47,700 against a principal that had never moved from $45,000
Folded quietly into a $255,000-plus consolidation, $2,700 is the kind of figure that is easy to wave through — small relative to the whole file, and dressed up as ordinary payout paperwork rather than an obvious error.
The numbers
Because the second was interest-only, confirming the correct payout meant confirming a number that should never have changed at all, then checking it against the loan's own commitment letter rather than trusting the lender's own statement at face value.
| Sizing the exit correctly | Amount |
|---|---|
| Existing first mortgage | $210,000 |
| Private second, true payout (interest-only principal, unchanged) | +$45,000 |
| New A-lender mortgage, correctly sized | $255,000 |
| As first quoted by the discharge statement | $257,700 |
| The consolidated file | Figure |
|---|---|
| New contract rate | 5.15% |
| Minimum qualifying rate (greater of contract + 2% or 5.25%) | 7.15% |
| Qualifying payment, 24 years | $1,838 |
| TDS on $7,200/mo combined income | 35.1% |
The second's own interest-only carrying cost, for reference, was $412/mo at 10.99% — a number that stayed flat every month it was outstanding, which is precisely why a payout figure $2,700 above the unchanged $45,000 principal didn't add up.
The solution
The broker treated the private lender's own discharge statement as a document to verify, not a figure to relay.
First, pulled the original commitment letter rather than working only from the discharge statement, and confirmed the renewal administration fee's exact trigger — a rollover past maturity, which this loan was not doing.
Second, put the $2,700 discrepancy to the private lender directly, in writing, before instructing the new lender's solicitor to release any funds against the quoted balance.
Third, sized the new A-lender mortgage to the corrected $255,000 figure only, rather than fund the disputed amount now and try to recover it afterward.
The outcome
The private lender corrected the statement, and the exit funded on the correct $255,000 balance rather than $257,700 — consistent with how moving a client from private back to an A lender is supposed to work. TDS on the consolidated file came to 35.1%, and the $2,700 stayed in the client's pocket rather than being quietly refinanced into a larger mortgage.
Because this is a refinance consolidating two existing mortgages, no property transfer occurs and no transfer tax applies in any province — the only closing costs were legal fees and standard adjustments.
What to take from this file
- 01An interest-only loan's principal is the easiest figure in a file to verify — it should never move on its own. A payout quote above that fixed number is a discrepancy, not a rounding difference.
- 02Check the discharge statement against the original commitment letter, not the other way around. The commitment letter is where the fee's actual trigger condition lives.
- 03A renewal fee that only applies on renewal should never appear on a payout at maturity. The two events are mutually exclusive by definition.
- 04Small errors hide well inside large consolidations. $2,700 is easy to miss inside a $255,000 refinance; it is not easy to miss when checked against the loan's own $45,000 principal.
- 05Resolve a payout dispute before funding, not after. Correcting the balance first meant the client never had to try to claw back an overpayment already rolled into a new mortgage.
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:
- ▸10.99% private rate / 5.15% new A-lender rate — rates move daily; neither is a quote.
- ▸the renewal-fee-on-payout error — private-lender fee schedules and commitment-letter terms are set lender by lender, not by a published rule.
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.