The client
An investor in St. Catharines-Niagara put $95,000 (20%) down on a $475,000 rental, with $8,600/month of their own primary income. The unit is leased at one flat, all-inclusive rent of $2,200/month — a figure that already has the landlord's own utility cost built into it.
Purchase price
$475,000
St. Catharines-Niagara
Down payment
$95,000 (20%)
Conventional, uninsured
Advertised rent
$2,200/month, all-inclusive
Utilities already included
Landlord's own utility cost
$250/month
Baked into the advertised rent
Primary income
$8,600/month
Before any add-back
The problem
A first reviewer's add-back tool pulled the advertised $2,200 figure straight off the lease and credited it in full — the same treatment it would apply to an ordinary lease where the tenant pays their own utilities separately. But this lease is all-inclusive: the $2,200 the tenant pays already has the landlord's own utility cost folded in, so the property's real net rental income is $250 a month lower than the number the tool credited.
Why the gross figure overstated the property's real income
- ▸An ordinary lease's rent and the tenant's own utility payments are two separate numbers
- ▸An all-inclusive lease folds the landlord's own utility cost INTO the one figure the tenant pays
- ▸Crediting that combined figure as pure rental income overstates what the landlord actually nets
This is a distinct trap from the usual add-back vs. offset differences across a lender panel — here, every lender's own method would apply correctly to the wrong starting number unless the utility cost is netted out first.
The numbers
Because this file is uninsured, CMHC's ratio maximums don't apply directly — the comparison below is what actually changed once the correct net-rent figure was used.
| Qualifying on the net rent vs. the gross all-inclusive figure | Amount |
|---|---|
| Purchase price | $475,000 |
| Down payment (20%) | $95,000 |
| Base mortgage, uninsured | $380,000 |
| Qualifying income and ratios | Using the $1,950 net rent | Using the $2,200 gross figure |
|---|---|---|
| Add-back at this lender's 50% | +$975/mo | +$1,100/mo |
| Qualifying income ($8,600 + add-back) | $9,575/mo | $9,700/mo |
| Payment at 7.00% (MQR), plus $340 tax/$250 utilities | $3,252 | $3,252 |
| TDS (housing + $295 car loan) ÷ qualifying income | 37.0% | 36.6% |
Using the gross figure would have made the file look marginally stronger, at 36.6% versus 37.0% — a small enough gap to seem immaterial, but it credits income the landlord never actually nets, in a rental market tight enough that getting the qualifying number right matters.
The solution
A mortgage agent pulled the lease's exact wording before letting any add-back run.
First, confirmed which utilities the all-inclusive rent actually covers. The lease named heat, water, and electricity as the landlord's own responsibility, folded into the one $2,200 figure.
Second, netted the $250 estimate out of the advertised rent before applying any add-back. $1,950, not $2,200, is the property's real net rental income.
Third, supplied the lender with both figures side by side. The gross lease rent for context, and the net figure as the only one that actually belongs in the ratios.
The outcome
The lender qualified the file on the correct $1,950 net-rent figure, adding back 50% to reach $9,575/month of qualifying income. GDS came to 34.0% and TDS to 37.0%; because this file is uninsured, CMHC's ratio maximums don't apply directly, and Ontario's land transfer tax on the purchase came to $5,975.
A different lender's own add-back or offset convention could produce a different qualifying number from the same $1,950 net-rent figure — but every lender's policy should start from that number, not the all-inclusive gross figure.
What to take from this file
- 01An all-inclusive rent figure already has utilities built in. Crediting it as pure rental income double-counts a cost the landlord, not the tenant, is actually paying.
- 02Net the utility estimate out before applying any add-back. A lender's own add-back or offset percentage should apply to the real net rent, not the advertised gross figure.
- 03A small-looking gap can still be the wrong number. 36.6% versus 37.0% looks immaterial, but one of those two TDS figures counts income the landlord never actually nets.
- 04Ask explicitly whether a rental's advertised rent is all-inclusive. The lease terms, not the listing price, settle whether utilities are already folded in.
- 05Uninsured ratios here are informational, not a regulatory ceiling. CMHC's 39%/44% maximums only bind insured files; this conventional purchase is governed by the lender's own policy.
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.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸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:
- ▸5.00% contract rate — rates move daily; not a quote.
- ▸the 50% add-back percentage — each lender sets its own rental-income treatment; some offset rather than add back.
- ▸the GDS/TDS figures — at 20% down this file is conventional, not CMHC-insured, so there is no regulatory ratio ceiling — the numbers are informational.
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.