When the plan runs short of cash

A plan can spend more than it earns. Some months that is planned, such as closing on a home; others it is a shock, such as a loss of pay. What the plan does next decides whether it shows a failure or what would really happen.

The order of draws

Cash held in the plan.
Savings accounts, in the order set for the household. By default that is non-registered accounts, then RRSPs, then TFSAs. Each withdrawal is taxed by its own account's rules, and an FHSA or RESP is not used for spending. See cash and where savings go.
A home equity line on each home owned, in the order the homes are listed.
One unsecured line of credit.

The rules for borrowing

Rates. 5.13% a year on the home equity line and 8.38% on the unsecured line, PWL Capital's long-run expected cost of each. They are expectations, not today's quotes.
Home equity line limit. At most 65% of the home's value, and no more than 80% of its value once the mortgage is counted.
Debt service limit. A lender stops when debt payments would pass 44% of gross income. The count includes the mortgage payment, property tax, heat, half of any condominium fee, personal debt payments, a home line as a 25-year payment on its balance, and an unsecured line as 3% of its balance a month. Income counts pay, pensions and suite rent.
Approval is not repeated. A line, once approved, can be used up to its limit even if income later falls. A higher limit is sought only when a month needs more than the limit, and then only to what qualifies that month.
Interest is a bill. The minimum payment is each month's interest. A month that cannot pay it borrows it, which is how debt compounds.
Repayment. Cash above any reserve the plan keeps repays the dearer line first, before any surplus is invested.
Tax. Interest on money borrowed to live on is not deductible.

What the engine does

Follows the order and limits above, using the value the plan projects for each home (see home prices).
Repays the home line when a home is sold. A balance the sale does not cover moves to the unsecured line if it qualifies.
Stops the projection when a month still needs money after every line is used to what lenders allow. The plan reports the month it stopped.

What it deliberately does not

Defaults, collections, consumer proposals and bankruptcy. A plan that cannot borrow more simply stops.
Credit cards, overdrafts and payday loans.
A lender's discretion, credit score, or a cut to an approved limit when the home's value falls.
The amortizing part of a home loan between 65% and 80% of value, and refinancing the mortgage to consolidate.
Reverse mortgages, and borrowing to invest.
The stress-test rate for lines. Lenders count a line at its contract rate, which is what the plan uses; the purchase test is described in would a lender write the mortgage.

Connected to

Home prices over time · A home's value is projected by growing it at one assumed rate, 3.5% a year by default, which is PWL Capital's 1% real return on a house plus 2.5% inflation. It is an editable assumption, not a forecast, and the Simulation view shows how widely a real home's value varies around it.
How a mortgage payment is worked out · A fixed-rate Canadian mortgage compounds its interest twice a year, not monthly, so the monthly payment comes from a rate slightly lower than the quoted rate divided by twelve. The default rate is 4.27%, and the rate stays fixed for the whole amortization.
Money you have not told the plan to invest · Income the plan does not spend and you have not allocated to an account is held as cash, earning the posted savings rate. It is not swept into an investment account, and it never over-fills a registered one.
Net worth, as the plan counts it · Net worth is everything the plan holds (cash, investment and registered accounts, homes at market value) minus mortgages, credit lines, debts and tax owing. It is not reduced for selling costs or for tax on money still in an RRSP.
Selling a home · A sale turns the home's projected market value into cash after selling costs of 5.8% and the mortgage payout. The gain on a principal residence is exempt from tax, apart from the part that was rented out when the exemption does not cover it.
Would a lender write the mortgage? · Lenders test a mortgage against two ratios, GDS at 39% and TDS at 44% of gross income, using a stress-test rate of the contract rate plus 2 points or 5.25%, whichever is higher. The planner runs this screen on the income entered for today.

Sources

CMHC — Calculating GDS / TDS (44% TDS, line-of-credit payments); OSFI B-20 Principle 4 (iv); Bank Act s.418(1); PWL Capital Table 3 · A plan that runs short after its own withdrawal order borrows — each home's equity line first, then an unsecured line — at most what a lender would approve: the line limits and a total debt service of 44% of gross income; the minimum payment is the interest; spare cash repays the dearest line first; a sold home's line is repaid at closing. When no lender would lend more, the projection stops. · effective 2026-10-01
PWL Capital — Financial Planning Assumptions (Market Capitalization Weighted Portfolio), mid-year 2026 data update, Table 3 (Expected Cost of Borrowing) · Default rate on a home equity line of credit — 5.13% a year, PWL's expected cost of a secured line of credit (PWL Capital, Financial Planning Assumptions, Table 3) · effective 2026-08-17
PWL Capital — Financial Planning Assumptions (Market Capitalization Weighted Portfolio), mid-year 2026 data update, Table 3 (Expected Cost of Borrowing) · Default rate on an unsecured line of credit — 8.38% a year, PWL's expected cost of an unsecured line of credit (PWL Capital, Financial Planning Assumptions, Table 3) · effective 2026-08-17
OSFI — Guideline B-20, Residential Mortgage Underwriting Practices and Procedures: "limit the non-amortizing HELOC component of a residential mortgage to a maximum authorized LTV ratio of less than or equal to 65 percent" · A home equity line of credit may reach at most 65% of the home's value (OSFI Guideline B-20, Principle 4 (iv)) · effective 2017-10-31
Bank Act s.418(1): a loan on residential property that, "together with the amount then outstanding of any mortgage having an equal or prior claim against the property, would exceed 80 per cent of the value of the property" is barred · Mortgage and home equity line together at most 80% of the home's value (Bank Act s.418(1); OSFI B-20) · effective 2007-04-20
CMHC — Calculating GDS / TDS: "For secured lines of credit, factor in an amount corresponding to at least a monthly payment on the outstanding balance amortized over 25 years using the contract rate." · In the debt-service test, a secured line of credit counts as its balance amortized over 25 years at the contract rate (CMHC) · effective 2018-03-31
CMHC — Calculating GDS / TDS: "For unsecured lines of credit and credit cards, factor in a monthly payment amount corresponding to no less than 3% of the outstanding balance." · In the debt-service test, an unsecured line of credit or credit card counts as 3% of its balance a month (CMHC) · effective 2018-03-31
CMHC — Calculating GDS / TDS: "If applicable, 50% of the condominium fees must be included in the GDS and TDS calculations." · In the debt-service test, half of any condominium fee counts as a housing cost (CMHC) · effective 2018-03-31
CMHC — Calculating GDS / TDS ("CMHC restricts debt service ratios to 39% (GDS) and 44% (TDS)") · TDS maximum (insured) · effective 2021-07-05
CMHC — Calculating GDS / TDS (actual heat costs, else "a reasonable estimate") · Heating estimate for GDS (lender convention) · effective 2026-01-01
CMHC — Calculating GDS / TDS ("up to 100% of gross rental income from the secondary suite") · Suite gross-rent add-back, 2-unit owner-occupied (insured) · effective 2023-01-01
My Own Advisor, "Common retirement drawdown orders" (2026-08-28): NRT is "the default logic in fact for many professional software programs" · A short month draws cash first, then non-registered accounts, then RRSPs, then TFSAs ("NRT"), until the household sets its own order; each withdrawal is taxed by its own account's rule; an FHSA or RESP is never drawn for spending; reported on the run · effective 2026-09-25