A suitability analysis should explain why a mortgage makes sense for the borrower,not just whether a lender will approve it. Does it solve the problem the borrower came in with? Are the payments manageable? Are the costs justified? And how will the borrower repay it?

The mortgage described in the Financial Services Regulatory Authority of Ontario’s (FSRA) notice of proposal concerning K. Banx Mortgage Ltd. provides a useful example. According to the notice, a borrower wanted approximately $150,000 to $200,000 to consolidate debts and provide a financial buffer. The brokerage presented a $900,000 replacement mortgage with a one-year term, significant fees, and higher borrowing costs. FSRA alleges that the mortgage was unsuitable.

Ontario’s suitability standard

Under section 24(1) of Ontario Regulation 188/08, a brokerage must take reasonable steps to ensure that a mortgage it presents for consideration is suitable having regard to the borrower’s needs and circumstances. That obligation applies when the mortgage is presented, even if it never closes. Lender approval, the borrower’s signature, and disclosure of the fees do not, on their own, establish suitability.

The brokerage needs to understand what the borrower wants to achieve, whether the payments are affordable, and what risks the borrower would be taking. The file should explain why the recommended mortgage makes sense compared with realistic alternatives. A checklist cannot stand in for that work.

Alberta, Québec and British Columbia

Other provinces also impose suitability and advice requirements, though the standards differ.

• Alberta: Mortgage-broker standards address understanding the borrower’s needs and circumstances, assessing suitable options, and explaining their implications. The practical question is whether the recommendation is supported by the borrower’s situation and the options available through the broker. See the rules published by the Real Estate Council of Alberta.
• Québec: Mortgage-broker obligations include assessing the client’s financial situation and needs, ensuring that the proposed loan is suitable, and advising the client about the transaction. See the AMF’s mortgage brokerage materials.
• British Columbia: Under the new Mortgage Services Act framework, a licensee must take reasonable steps to ensure that a mortgage or mortgage transaction presented to a borrower or lender is suitable, having regard to their needs and circumstances and the identification of material risks. For this case, that means assessing not only affordability and borrowing objectives, but also the risks of higher costs and refinancing after one year.

The proposed refinancing

According to the notice, the borrower sought approximately $150,000 to $200,000 to consolidate debts and provide a financial buffer. FSRA alleges that the brokerage instead presented a $900,000 mortgage with a one-year term, a stated interest rate of 6.89%, and an annual percentage rate of 11.78% including fees. Replacing the existing mortgages would also have triggered a discharge penalty of approximately $17,000. The existing mortgages carried interest rates of 6% and 4.79%.

The notice alleges that the brokerage did not adequately document the borrower’s personal and financial circumstances, risk tolerance, or exit strategy. It also alleges that the borrower was pressured to sign without adequate review time and that the property’s co-owner was not contacted. The borrower cancelled the application, and the mortgage never funded.

Suitability analysis

Loan amount and net proceeds

The first question is how the proposed borrowing serves the borrower’s request for debt consolidation and a $150,000 to $200,000 financial buffer.

The file should show where the $900,000 would go: existing mortgage payouts, other debt repayments, penalties, fees, and the cash left for the borrower. The difference between $900,000 and the requested amount does not, on its own, prove unsuitability. A replacement mortgage may need to pay out existing mortgages as well as provide new funds.

But those amounts need to be accounted for, and the decision to replace the existing financing needs an explanation.

Alternatives to refinancing

The borrower already had mortgages at 6% and 4.79%. Replacing them with a 6.89% mortgage, while paying substantial fees and a discharge penalty, calls for a clear explanation. Would keeping those mortgages and arranging a smaller amount of additional financing have been a better option?

The brokerage should compare the refinance with options the borrower could realistically obtain. Those might include additional financing from the existing lender, a smaller second mortgage, or another debt-repayment arrangement. The comparison should cover eligibility, payments, costs, and risks. None of these options can be assumed to be available or suitable. If they were ruled out, the file should say why.

Fees and borrowing costs

The 6.89% interest rate was only part of the cost. The notice gives an APR of 11.78%, identifies a discharge penalty of about $17,000, and points to the possibility of more financing fees after one year. The assessment needs to translate those costs into dollars, not stop at the advertised rate or APR.

Compare the options over the same period, including interest, brokerage and lender fees, legal and valuation costs, discharge penalties, and expected repayment or refinancing costs. Show what is deducted at closing and what is paid later, without counting the same fee twice.

Then compare those costs with the expected savings from consolidating the debts. Lower monthly payments may help, but the borrower also needs to understand whether they come with higher total costs or a harder repayment problem later.

Income and affordability

According to the notice, the borrower realised after signing that she could not afford the payments. FSRA also alleges that the application contained inflated employment income and rental income she did not receive. Those allegations matter to suitability as well as document integrity: payments cannot be assessed properly using income that does not exist.

Use verified income and the borrower’s actual expenses to assess whether the proposed payments leave enough for remaining debts, property costs, and ordinary living expenses. Confirm which debts will be paid off. Consider what would happen if income fell or refinancing rates rose. A lender’s approval is not a substitute for assessing whether the borrower can manage the payments.

Repayment after one year

A one-year term means the borrower will soon need to repay, renew, or refinance. The notice alleges that no exit strategy was documented. It also says the property was jointly owned with the borrower’s daughter, who was not contacted and did not provide consent. These are practical obstacles, not just missing paperwork.

If the plan is to refinance, explain why that is likely to be possible based on the borrower’s expected income, debts, equity, and lender eligibility. Include the likely fees and what happens if refinancing is unavailable. Future lender approval and rising property values cannot be taken for granted.

Confirm ownership and any required co-owner participation or consent before proceeding, and record that the borrower understands the repayment risk.

File documentation

FSRA alleges that the suitability form contained little information and that the brokerage did not consistently follow its own procedures. The file should explain the recommendation well enough that another reviewer can understand it. A signature or a statement that the borrower wanted the mortgage is not enough.

Keep the verified facts, calculations, alternatives, risk explanations, and reasons for the recommendation. Give the borrower the required disclosures and time to consider them, respecting the prescribed disclosure periods and any requirements for a valid waiver. Resolve important gaps before recommending the mortgage. The borrower’s agreement to proceed does not remove the brokerage’s duty to assess suitability.

Assessment of the recommendation

On the facts alleged in the notice, there were serious reasons to question the recommendation: the cost of replacing the existing mortgages, the uncertain benefit of consolidating the debts, the borrower’s ability to make the payments, and the lack of a documented plan for the end of the one-year term.

Suitability is not rocket science, but it does require doing the work. Are you recommending a mortgage that serves the client’s needs, or simply one you can get approved? Check that the numbers work, the costs are justified, and the repayment plan is realistic. Explain the material risks and record why the recommendation makes sense. If you cannot explain how the mortgage meets the client’s needs and circumstances, you have not finished the suitability analysis.