Rental & Income Property Mortgages

The Mainstream Mortgage Team are rental property experts.  If you are planning on purchasing a rental property or refinancing a portfolio please contact us first!

If you are purchasing a secondary property – whether a vacation home or investment property – there are a few differences if the intention is to rent. Before you look at purchasing a rental property, there are a few things to consider:

1. The minimum down payment required is 20% of the purchase price, and the funds must come from your own savings, or existing home’s equity.  As a general rule, you cannot use a gift from someone else but certain exceptions can apply.
2. The minimum down payment required for an owner-occupied duplex is 5% with having the mortgage insured by CMHC/Sagen/Canada Guaranty.
3. The minimum down payment required for an owner-occupied triplex or four-plex is 10% with having the mortgage insured by CMHC/Sagen/Canada Guaranty.
4. Only a portion of the rental income can be used to qualify for and to determine how much of a mortgage you can afford to borrow. Some lenders will only allow you to use 50% of the income added to yours, while other lenders may allow up to 80% of the rental income while subtracting your expenses. This can have a much higher impact on how much you can afford.  Some lenders will even allow 100% of the rental income added to yours.
5. Interest rates will usually have an added premium on them when the mortgage is for a rental property versus a mortgage for a home someone intends on living in. The premium can be anywhere from 0.10% to 0.20% on a regular 5-year fixed rate.
6. Some lenders will limit the number of rental properties a person can own.
7. Converting your existing home to a rental property and purchasing a new primary residence.  Lenders will allow up to 95% of the rental income from the existing property while subtracting your expenses.

Rental income from the property can be used to debt service the mortgage application, but do bear in mind that some lenders will have a minimum liquid net worth requirement outside of the property.

Along with the added monthly cash flow, rental properties have the added benefit of being able to write off interest on ANY money used for the rental, even if it is pulled from your primary home’s equity. Also, if you do eventually want to sell this property, do note that it will be subject to capital gains tax. Your accountant will be able to help you determine potential write-offs and required tax payments if you do decide to sell in the future.