The client
A homeowner in Montreal carried a $232,000 first mortgage and a $54,000 private second, both to be consolidated into one new A-lender refinance.
First mortgage balance
$232,000
4.60%, 19 years remaining
Private second balance
$54,000
9.75% interest-only; originally placed through the broker's own referral
Combined income
$7,500/month
Other debt
$225/mo car loan
The problem
The broker had originally referred this client to the private lender behind the second mortgage years earlier, and was paid a referral fee for that placement -- properly disclosed at the time. Arranging the exit and consolidation now is a new engagement and a new recommendation, and Quebec's conflict-of-interest and disclosure obligations call for that historical relationship to be disclosed again, in writing, as part of this transaction specifically.
Why the old disclosure didn't cover this file
- ▸The original disclosure covered the placement of the private second, years earlier -- a different transaction with a different recommendation
- ▸This engagement is a new recommendation: how and when to exit the same private loan
- ▸The referral-fee relationship with the same private lender is still a relevant fact for the client to weigh in this new recommendation
The fee itself was never the problem -- it was disclosed properly when it was paid. Assuming that disclosure still covered a different recommendation, years later, was.
The numbers
The exit itself was ordinary consolidation arithmetic, handled once the disclosure question was addressed on its own.
| Consolidating the first mortgage and the private second | Amount |
|---|---|
| First mortgage balance | $232,000 |
| Private second balance | $54,000 |
| New consolidated balance | $286,000 |
| Total debt service | Before (both mortgages) | After (consolidated) |
|---|---|---|
| Mortgage payment | $1,523 | $2,003 |
| Property tax + heat | $405 | $405 |
| Private second, interest-only | $439 | -- |
| Car loan | $225 | $225 |
| Total debt service | 34.6% | 35.1% |
34.6% moving to 35.1% is a minor shift next to the real question on this file: whether the client had everything relevant to weigh before following the broker's own recommendation on how to exit a loan the broker had originally referred them into. Private lending disclosure rules exist precisely for moments like this one.
The solution
A courtier hypothécaire licensed under Quebec's Act respecting the distribution of financial products and services put the historical referral-fee relationship in writing again, specifically for this payout-and-consolidation engagement, before recommending how and when to exit the private loan.
First, disclosed the original referral fee and the ongoing relationship with the same private lender in writing, as part of this new engagement -- not by pointing back to the disclosure made at placement.
Second, gave the client the choice to seek an independent opinion on the exit strategy before proceeding, exactly as a fresh conflict-of-interest disclosure is meant to allow.
Third, proceeded with the consolidation once the client confirmed, in writing, that the disclosure had been received and the recommendation was still wanted.
The outcome
The consolidation closed at 5.00%, the private second was discharged, and total debt service settled at 35.1%.
This file is uninsured, so CMHC's ratio maximums do not apply directly; the 34.6% and 35.1% figures are informational. The referral relationship was disclosed in writing for this engagement specifically, not assumed from the original placement.
What to take from this file
- 01A conflict-of-interest disclosure covers the transaction it was made for -- not every future recommendation involving the same relationship. A new engagement calls for its own disclosure, even where the underlying facts haven't changed.
- 02A properly disclosed referral fee, years ago, is not a problem to fix. It is a fact to disclose again, in writing, whenever it becomes relevant to a new recommendation.
- 03Give the client a real chance to seek an independent opinion. A disclosure that doesn't come with that option is a formality, not a genuine conflict-of-interest safeguard.
- 04Document the client's acknowledgment, not just the broker's disclosure. A written record that the client received and understood the disclosure is what actually protects both sides.
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:
- ▸9.75% / 5.00% rates — rates move daily; neither is a quote.
- ▸the broker's original referral fee from the private lender — referral-fee arrangements and their amounts vary by lender and by broker; this reflects one file's own facts, not a universal figure.
- ▸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.