The client
A two-income, salaried couple in suburban Ottawa — stable T4 employment, clean credit, and a starter condo they bought years ago. The plan was the classic Canadian move-up: buy a detached home for the growing family and keep the condo as a rental instead of selling into a soft condo market — a reasonable call given how tight Canadian rental vacancy has been. A signed one-year lease was already in hand, and the Ottawa market supported both the purchase price and the rent.
Borrowers
Salaried couple, both on T4s
Multi-year tenure with their employers
Combined gross income
$175,000 / year
$14,583 per month for the ratio math
Credit picture
Mid-700s at both bureaus
Clean repayment history; one car loan at $560/mo
New purchase
$760,000 detached, Ottawa
Property tax $6,600/yr; lender-standard heat estimate $150/mo
Down payment
$76,000 — 10%
Under 20%, so the file must be default-insured
Keeping
Condo rented at $2,400/mo
Signed one-year lease; $318,000 mortgage remaining
The condo’s carrying costs — the numbers that decide this whole file:
| Existing condo (kept as rental) | Monthly |
|---|---|
| Mortgage payment (P&I on the $318,000 balance) | $1,860 |
| Property tax | $300 |
| Condo fees $520 — lenders commonly count half | $260 |
| Carrying costs counted in the ratios | $2,420 |
| Rent on the signed lease | $2,400 |
The problem
They took the file to their own bank first. The bank’s policy for rental income on a non-subject property was an add-back: add half of the gross rent to income, and carry all of the rental’s costs as liabilities in the TDS. That treatment is real and common — and on this file, it was fatal.
The add-back arithmetic
- ▸Income used: $14,583 + $1,200 (half of the $2,400 rent) = $15,783/mo
- ▸Liabilities: $5,334 new-home housing costs + $560 car loan + $2,420 full condo carrying costs = $8,314/mo
- ▸TDS: $8,314 ÷ $15,783 = 52.7% — against CMHC’s 44% maximum. Declined.
Notice the shape of the damage: the add-back grosses income up a little ($1,200), but loads the liability side with the condo’s entire $2,420 — even though the tenant’s rent covers essentially all of it. A unit that roughly breaks even in real life shows up in the ratios as a $1,220-a-month anchor. The clients heard “you don’t qualify” and assumed the dream was dead or the condo had to be sold.
The numbers
First, the loan itself. At 10% down this is an insured file, which is what makes the ratio caps hard numbers rather than lender preferences — CMHC’s maximums are GDS 39% and TDS 44%.
| Structuring the insured loan | Amount |
|---|---|
| Purchase price | $760,000 |
| Down payment (10%) | −$76,000 |
| Base mortgage (90% LTV) | $684,000 |
| CMHC premium — 3.10% in the 85.01–90% LTV band, capitalized | +$21,204 |
| Total insured mortgage | $705,204 |
Checks along the way: the price sits under the $1.5-million insured cap, and the minimum down payment at this price is $51,000 — 5% of the first $500,000 plus 10% of the rest (in force since December 15, 2024) — so $76,000 clears it comfortably. Amortization is 25 years: the 30-year insured option is limited to first-time buyers and new builds, and these are repeat buyers on a resale home.
| Rate & payments | Figure |
|---|---|
| Contract rate — 5-year fixed (illustrative, not a quote) | 4.29% |
| Minimum qualifying rate — greater of contract + 2% and 5.25% | 6.29% |
| Monthly P&I at the qualifying rate — the ratios run on this | $4,634 |
| Monthly P&I at the contract rate — what they actually pay | $3,821 |
Payments computed the Canadian way — rate compounded semi-annually, paid monthly, 25-year amortization — and rounded to the nearest dollar. Ratios are computed on the displayed dollar figures and rounded to one decimal.
GDS — the same under any rental treatment
| GDS (new home only) | Monthly |
|---|---|
| P&I at the qualifying rate | $4,634 |
| Property tax | $550 |
| Heat (lender-standard estimate) | $150 |
| Housing costs $5,334 ÷ income $14,583 → GDS 36.6% — under the 39% cap | ✓ |
TDS — where the two treatments part ways
Same borrowers, same condo, same lease. The only variable is how the lender’s policy handles rental income on a non-subject property. The percentages here — a 50% add-back, an 80% rental offset — are illustrative of the two common structures; each lender publishes its own, and the insurer signs off on the file.
| TDS line | Bank A — 50% add-back | Lender B — 80% offset |
|---|---|---|
| Housing costs (GDS numerator) | $5,334 | $5,334 |
| Car loan | $560 | $560 |
| Rental treatment in liabilities | $2,420 (full carrying costs) | $500 (shortfall: $2,420 − 80% × $2,400) |
| Income used | $15,783 (incl. half of rent) | $14,583 (no rent added) |
| TDS vs. the 44% cap | 52.7% ✗ | 43.8% ✓ |
Under the offset, the rent is applied against the condo’s own costs before anything reaches the ratios; only the $500 shortfall lands in liabilities. The same file swings almost nine TDS points — and clears the 44% ceiling with roughly 15 basis points of headroom. Thin, but a pass is a pass.
The solution
An FSRA-licensed Ontario mortgage agent did three things — none of them exotic, all of them decisive.
First, diagnosed the decline. The bank’s “no” was a statement about its rental-income policy, not about the borrowers. Before touching the file, the agent re-ran the TDS under both common treatments and confirmed the deal lived or died on that single policy choice.
Second, matched the file to an offset lender. From the lenders on the agent’s shelf whose published policy offsets rental income against the rental’s own carrying costs, the file went to one that also took the remaining shortfall — not the gross costs — into TDS. That is what turned 52.7% into 43.8%. The full landscape of treatments is mapped in our comparison of rental income offset methods.
Third, packaged the proof up front. With 15 basis points of headroom, there was no room for surprises at underwriting. The submission went in complete:
What the lender needed to see was exactly what the package proved: income that is stable and documented, a lease that carries the condo, ratios inside 39/44 at the qualifying rate, and a down payment with a clean 90-day trail. The insurer’s approval followed the lender’s.
The outcome & the closing math
Approved and funded: insured at 90% LTV, 25-year amortization, on a 5-year fixed term — and the condo stayed in the portfolio. The last piece of broker work was making sure the clients had the cash the closing actually demands, beyond the down payment:
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| Ontario land transfer tax on $760,000 — 0.5% / 1.0% / 1.5% / 2.0% marginal brackets; no first-time-buyer refund for repeat buyers, and unlike Toronto, Ottawa adds no municipal LTT | $11,675 |
| Ontario RST on the insurance premium — 8% × $21,204; the premium itself is capitalized, but the tax on it is cash at closing | $1,696 |
| Legal fees, title insurance & adjustments | varies |
The lender also wanted evidence of funds to cover closing costs on top of the $76,000 down payment — standard on insured files — which the same 90-day statements demonstrated.
What to take from this file
- 01Know each lender’s rental treatment before you pick the lender. In this illustration the identical file swings almost nine TDS points between an add-back and an offset. Run both computations before you submit anywhere.
- 02The approval math runs at the qualifying rate, not the contract rate. This file qualifies at 6.29% and pays at 4.29% — an $813-a-month gap between the payment that decides the ratios and the payment that hits the bank account.
- 03A rental that cash-flows can still sink the ratios. Full P&I, property tax, and half the condo fees hit the liability side even when the lease covers them in real life. The ratios see policy, not cash flow.
- 04A decline is a data point about that institution’s policy — not a verdict on the borrower. The second opinion is the job.
- 05Budget the closing cash, not just the down payment. On this file, land transfer tax plus the RST on the premium added $13,371 in cash before legal fees — and the premium tax cannot be rolled into the mortgage.
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 — Purchase (Mortgage Loan Insurance) — default-insurance premium schedule by LTV band (25-year amortization).
- ▸CMHC — CMHC Home Start — minimum down payment tiers (5%/10%) and the $1.5M insured price cap; 30-year insured amortization: first-time buyers and new builds only.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸CMHC — CMHC Reviews Underwriting Criteria — GDS 39% / TDS 44% maximums and the 600 credit-score floor for insured files.
- ▸Ontario.ca — Retail Sales Tax: Insurance and Benefits Plans — 8% Ontario RST on default-insurance premiums, cash at closing.
- ▸Ontario.ca — Calculating Land Transfer Tax / Land Transfer Tax Refunds for First-Time Homebuyers — Ontario's marginal land transfer tax brackets and first-time-buyer refund.
- ▸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:
- ▸4.29% contract rate — rates move daily; not a quote.
- ▸50% add-back / 80% offset percentages — each lender publishes its own rental-income treatment.
- ▸$150/mo heat allowance and the half-of-condo-fees convention — lender-standard estimates, not rules.
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.