The client
A household in London, Ontario, carries a $300,000 first mortgage and a $70,000 private second mortgage, home valued at $460,000. Income and the first mortgage were never the problem on this file.
Home value
$460,000
London
First mortgage
$300,000
Performing normally
Private second
$70,000, interest-only
9.49%, original principal
Combined income
$8,100/month
Both salaried
Other debt
$300/mo car loan
Unchanged through the refinance
The problem
Consolidating the full $70,000 private second into the first mortgage puts loan-to-value at 80.4% -- just over the 80% ceiling most A-lenders hold for an uninsured refinance, with no ratio problem sitting behind it at all. The household could easily carry a consolidated payment; the file simply priced out one fraction of a point too high on value.
Why 80.4% mattered more than the ratios
- ▸Mortgage default insurance is not available on a refinance at all, so an uninsured LTV ceiling is the effective limit, not a CMHC-published rule
- ▸Most A-lenders hold that ceiling at 80% as internal policy for exactly this reason
- ▸0.4 percentage points -- about $1,800 on this file -- was the entire gap between a routine A-lender exit and a much harder conversation about a smaller consolidation or a second-position workaround
The gap was small enough that it invited a second look at the private note itself, not just the payout statement quoting the balance owed.
The numbers
The note itself, not the current payout figure, was where the fix turned up -- a reminder that private-lending files carry their own arrears and exit patterns worth knowing before assuming a payout statement tells the whole story.
| Shrinking the balance before pricing the exit | Amount |
|---|---|
| Private second, original balance | $70,000 |
| Annual prepayment privilege (10% of original) | $7,000 |
| Private balance after prepayment | $63,000 |
| New consolidated balance | $363,000 |
| Loan-to-value on the consolidated refinance | Without the prepayment | With the prepayment |
|---|---|---|
| Consolidated balance | $370,000 | $363,000 |
| Home value | $460,000 | $460,000 |
| Loan-to-value | 80.4% | 78.9% |
| Total debt service, consolidated at 78.9% LTV | Figure |
|---|---|
| Minimum qualifying rate on a 5.05% contract rate | 7.05% |
| Payment at the qualifying rate, 25 years | $2,554 |
| TDS (payment + tax + heat + car loan) ÷ $8,100 income | 40.7% |
At 78.9% loan-to-value, the refinance was a routine A-lender file on its merits -- the 1.5-point gap the prepayment closed was the entire obstacle.
The solution
A mortgage agent licensed under Ontario's Mortgage Brokerages, Lenders and Administrators Act read the private note itself, not just the current payout statement.
First, priced the consolidated exit at the full $70,000 balance and confirmed the 80.4% loan-to-value was the only obstacle. Ratios, income and the first mortgage's own standing were never in question.
Second, reviewed the private note's own terms for anything that could reduce the balance before pricing. Found a 10% annual prepayment privilege, without penalty, that the household had never once used in two years -- a term worth checking on any private mortgage exit, not assumed absent.
Third, had the household exercise the privilege from savings, days before the refinance was priced. $7,000 off the private balance brought loan-to-value to 78.9%, comfortably clear of the 80% ceiling.
The outcome
The consolidated refinance closed at 5.05%, at 78.9% loan-to-value, with total debt service at 40.7% -- a routine A-lender file once the private note's own terms were actually read, not just its current balance.
Because this is an uninsured refinance, CMHC's ratio maximums don't apply to it directly; the 40.7% figure reflects the household's own comfortable serviceability, not a regulatory pass/fail line.
What to take from this file
- 01Read the private note itself, not just the payout statement. A payout figure shows what is currently owed; it says nothing about prepayment rights the borrower may already have.
- 02A private second isn't automatically as rigid as its balance suggests. Some notes include modest prepayment allowances most borrowers never think to use.
- 03A small loan-to-value gap can be the entire obstacle on an otherwise clean file. Half a point over 80% blocked a refinance that was never a ratio problem.
- 04Exercise available prepayment rights before shopping the exit, not after. Timing the paydown ahead of pricing is what let it actually move the loan-to-value calculation.
- 05Mortgage default insurance isn't available on a refinance -- the 80% ceiling most A-lenders hold is their own internal policy, not a CMHC rule, but it is real and it binds just the same.
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:
- ▸9.49% / 5.05% rates — rates move daily; neither is a quote.
- ▸the 80% loan-to-value ceiling on an uninsured refinance — most A-lenders hold to this figure as internal policy for a refinance -- it is common practice, not a single published statute.
- ▸the TDS figure — this file is uninsured, so there is no CMHC ratio ceiling -- the number is informational, not a pass/fail line.
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.