The client
A buyer purchasing a rental property in St. John's, Newfoundland and Labrador, already carrying a mortgage on their own home. The rental unit came with a sitting tenant on a lease signed years earlier at a fixed rent well under what a comparable unit commands today — and because the tenancy transfers with the sale, the new owner inherits that lease exactly as written.
Rental purchase
$245,000, 20% down
Uninsured investment property
Sitting tenant's actual rent
$950/month, fixed lease
Signed years before the sale; survives it
Appraiser's market-rent opinion
$1,400/month
For a comparable unit — not what this tenant pays
Buyer's own home
$1,450/mo mortgage, $220/mo tax
Existing, unrelated to this purchase
Buyer's income
$5,800/month T4
Own employment income
The problem
The pre-approval was run using the appraiser's $1,400 market-rent opinion — the standard reference point when a property doesn't come with its own lease. This one does, and the lease says something different.
Two rents, one property
- ▸Rental carrying costs (mortgage payment + property tax): $1,603/mo
- ▸Against the appraiser's $1,400/mo market rent: a modest $203/mo shortfall
- ▸Against the tenant's actual $950/mo lease: a $653/mo shortfall — more than triple
Because the tenancy transfers with the sale, the buyer cannot simply reset the rent to market on closing — the existing lease's terms carry over intact. A lender applying the rental offset correctly has to use the rent that will actually be collected, not the rent a vacant unit might command.
The numbers
The rental property's own mortgage payment never changed. What changed the file was which rent figure got weighed against that payment — the appraiser's opinion, or the lease the buyer is actually inheriting.
| The rental's own carrying costs | Amount |
|---|---|
| Rental property purchase price | $245,000 |
| Down payment (20%, uninsured) | −$49,000 |
| Base mortgage | $196,000 |
| Qualifying payment, 25 years | $1,403/mo |
| Carrying costs (payment + $200 tax) | $1,603/mo |
| Total debt service (buyer's own home + rental shortfall) | On market rent | On the actual lease |
|---|---|---|
| Own home: payment + tax + heat | $1,770 | $1,770 |
| Own other debt | $270 | $270 |
| Rental shortfall (carrying costs less rent credited) | $203 | $653 |
| Total debt service ÷ $5,800 income | 38.7% | 46.4% |
The GDS figures don't apply here in the CMHC sense — this is an uninsured investment-property purchase, so there is no 39%/44% regulatory ceiling. The gap between the two numbers is entirely about which rent the file is actually built on.
The solution
A mortgage broker in Newfoundland and Labrador treated the existing tenancy as documentation to gather, not a detail to skip past.
First, pulled the actual lease before the pre-approval was relied on for anything. The appraiser's market-rent figure is a fallback for a vacant or new tenancy, not a substitute for a lease that already exists.
Second, confirmed the lease's remaining term and that it survives the sale under Newfoundland and Labrador's residential tenancies rules. The buyer needed to know exactly when, if ever, the rent could reset toward market.
Third, moved the file to a lender whose uninsured investment-property policy would still fund at a TDS in the mid-40s for a strong-covenant borrower — a real option once the ratios are properly documented, not a workaround for a bad file.
The outcome
The purchase funded uninsured, correctly priced on the tenant's actual $950/month lease. Total debt service came to 46.4%, and the file still closed — on the strength of the buyer's overall financial position, not a hidden regulatory ceiling this file was never subject to in the first place.
Had the file been submitted on the appraiser's market-rent figure and only corrected at underwriting, the buyer would likely have faced a decline and a re-shop under time pressure, rather than a lender chosen deliberately from the start.
What to take from this file
- 01A sitting tenant's actual lease outranks the appraiser's market-rent opinion. The lender has to qualify the file on the rent that will actually be collected.
- 02A below-market lease that survives the sale is a real cost, not a paperwork footnote. Here it more than tripled the rental's monthly shortfall.
- 03Pull the actual lease before relying on any pre-approval. An appraiser's opinion is a fallback for a vacant unit, not a substitute for a signed lease already in place.
- 04An uninsured file isn't bound by CMHC's ratio caps. That doesn't mean ratios don't matter — it means the ceiling that matters is the lender's own, and it's worth knowing before assuming the file won't fund.
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%.
- ▸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:
- ▸5.25% contract rate — rates move daily; not a quote.
- ▸the TDS figures — this is an uninsured investment-property purchase, so there is no CMHC ratio ceiling — the numbers show what the actual lease costs the file versus the appraiser's estimate, not a regulatory pass/fail line.
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.