Can mortgage arrears be added to a refinance?

The client problem

The requested mortgage clears the arrears on paper, but legal fees, penalties and property-tax balances consume the remaining equity. The client closes with no emergency reserve and falls behind again.

A practical Ontario example

A $40,000 arrears problem becomes $55,000 after fees and other secured debts. The broker should calculate the lawyer’s net proceeds and post-closing budget before recommending the refinance.

How the lending routes may differ

• A lender: may work after the account is brought current and the file meets standard policy; active arrears often narrow choices.
• Alternative/B: may refinance recent arrears with a credible explanation and stronger equity.
• MIC/private: can pay out urgent arrears quickly, but fees, interest and the exit date must be stress-tested.

Policy boundary: FCAC expectations discussed here apply to federally regulated financial institutions and do not require every lender to offer the same relief.

Questions to ask now

• What is the current payout including legal costs?
• How much equity remains at a conservative value?
• What caused the arrears?
• What changes prevent another default?

Rajiv’s practical view

Request written payouts from every secured creditor. A refinance amount is not a solution until the client sees the cash flow and balance after closing.