The client
A contractor in the Saguenay area doing maintenance work tied to the region's industrial plants — work that spikes during a scheduled turnaround and quiets down between them — wanted to refinance $430,000, above the average new mortgage amount in Canada, and consolidate a renovation loan. A spouse's T4 income helped, but the contractor's most recent tax year happened to fall in a quiet stretch between contracts.
Borrowers
One T4-salaried spouse, one industrial contractor
Plant-maintenance and turnaround work
T4 income
$51,000 / year
$4,250 per month
T1 net income, Year 1
$115,000
A scheduled plant turnaround year
T1 net income, Year 2
$47,000
Quiet year between contracts, most recent
Refinance
$430,000 mortgage
Property tax $260/mo; heat estimate $120/mo
Purpose
Consolidate a renovation loan
Consolidated payment $520/mo
The contractor's two-year contract cycle, in raw T1 net income:
| T1 net business income | Amount |
|---|---|
| Year 1 (scheduled plant turnaround) | $115,000 |
| Year 2 (quiet year, most recent) | $47,000 |
| Two-year average | $81,000 |
The problem
Industrial maintenance work in this region runs on the plants' own maintenance schedules — a scheduled turnaround brings a surge of contract work, and the intervening years are quieter by design, not by decline. The lender's file qualified on the most recent T1 alone: a quiet year, taken with no context from the turnaround year before it.
The single-year arithmetic
- ▸Income used: $4,250/mo (T4) + $3,917/mo (quiet year only) = $8,167/mo
- ▸Liabilities: mortgage payment at the qualifying rate + property tax + heat + the renovation-loan consolidation payment
- ▸TDS: 47.5% — against a 44% ceiling. Declined.
A signed contract for the next scheduled turnaround was already in hand, confirming the quiet year was a normal trough between contracts rather than a shrinking business. The file was hard only because the underwriter had one data point where the contract cycle called for two.
The numbers
This is a conventional refinance consolidating a renovation loan, so 39% GDS / 44% TDS is the working convention rather than an insurer-mandated ceiling.
| The refinance | Amount |
|---|---|
| Refinance mortgage amount | $430,000 |
| Contract rate — 5-year fixed (illustrative, not a quote) | 4.89% |
| Minimum qualifying rate — greater of contract + 2% and 5.25% | 6.89% |
| Rate & payments | Figure |
|---|---|
| Monthly P&I at the qualifying rate — the ratios run on this | $2,983 |
| Monthly P&I at the contract rate — what they actually pay | $2,474 |
Quiet year alone vs. the two-year cycle average
| Income treatment | Quiet year alone | Two-year average |
|---|---|---|
| Contractor income, annual | $47,000 | $81,000 |
| Contractor income, monthly | $3,917 | $6,750 |
| Combined with the $4,250/mo T4 income | $8,167 | $11,000 |
| GDS | 41.2% | 30.6% |
| TDS vs. the 44% convention | 47.5% ✗ | 35.3% ✓ |
The two-year average clears both ratios with substantial room — GDS from 41.2% to 30.6%, TDS from a declined 47.5% to an approved 35.3%.
The solution
A courtier hypothécaire licensed by the Autorité des marchés financiers (AMF) rebuilt the income picture around the plant-maintenance contract cycle.
First, secured the prior turnaround year's return. The quiet year hadn't been unusual to the borrower at all — it was simply the gap between contracts — but the lender's file had never asked for the year before it.
Second, moved the file to a lender that applies the standard two-year average when a single year looks unusable on its own. A contract-cycle business is exactly the case this convention exists for.
Third, added the forward-looking evidence an underwriter would want. A signed contract for the next scheduled turnaround supported that the cycle was continuing, not ending.
With the contract cycle documented and the average properly applied, the file cleared underwriting cleanly.
The outcome
Approved and funded as a conventional refinance at the qualifying rate of 6.89%, 25-year amortization, 5-year fixed term, with the renovation loan folded into the new balance.
As a refinance, this file involved no Quebec transfer duty (welcome tax); closing costs were limited to notarial fees and standard registration charges.
What to take from this file
- 01A contract-cycle business needs its cycle recognized, not just its most recent tax return. A scheduled quiet year between contracts is not the same as a declining business.
- 02A signed forward contract is strong supporting evidence. It shows the cycle continues rather than trails off.
- 03The ratios run at the qualifying rate, not the contract rate. This file qualifies at 6.89% and pays at 4.89% — a $509-a-month gap.
- 04A refinance carries no transfer-tax event. In Quebec that means no welcome-tax line to budget for at all, unlike on a purchase.
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.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸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:
- ▸4.89% contract rate — rates move daily; not a quote.
- ▸two-year averaging convention — each lender sets its own policy on how many years to average for a contract-cycle business.
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.