The client
A single applicant working in the Drummondville market wanted a straight investment property: no plan to live in either unit, both sides rented from closing day. A non-owner-occupied investment-property mortgage like this is priced and underwritten differently from an owner-occupied purchase, and with rental vacancy tight across Quebec, both units already had tenants lined up before the offer went in.
Applicant
Single applicant, salaried
$5,000/month gross income
Purchase price
$460,000 duplex, Drummondville
Non-owner-occupied from closing
Down payment
$92,000 — 20%
Conventional; structured for a non-owner-occupied purchase
Unit A lease
$1,150/month
Signed
Unit B lease
$1,050/month
Signed; heat is tenant-paid under both leases
Existing debt
$410/month auto loan
Carried in both scenarios below
The purchase, before either lease enters the ratio math:
| Purchase structuring | Amount |
|---|---|
| Purchase price | $460,000 |
| Down payment (20%) | −$92,000 |
| Loan amount | $368,000 |
| Quebec welcome tax (droits de mutation) due at closing | $5,010 |
The problem
The applicant's own bank applied its standard add-back policy to both leases: half the combined rent added to income, full carrying costs charged against the file as a liability — the same treatment a lender would apply to a rental kept alongside a new primary residence, even though here there is no primary residence in the file at all.
The add-back arithmetic
- ▸Income used: $5,000 + $1,100 (half of the $2,200 combined rent) = $6,100/mo
- ▸Liabilities: $2,888 full carrying cost + $410 car loan = $3,298/mo
- ▸TDS: $3,298 ÷ $6,100 = 54.1% — over the 44% ceiling. Declined.
A single applicant's own income was never going to carry a $460,000 duplex on its own, and the add-back treatment barely credits the two signed leases that were meant to do exactly that.
The numbers
At 20% down, the loan is $368,000; the file qualifies at the minimum qualifying rate against the actual contract rate.
| Rate and payment | Amount |
|---|---|
| Contract rate — 5-year fixed conventional (illustrative, not a quote) | 5.09% |
| Minimum qualifying rate — greater of contract + 2% and 5.25% | 7.09% |
| Monthly P&I at the qualifying rate — the ratios run on this | $2,598 |
| Monthly P&I at the contract rate — what is actually paid | $2,159 |
Full carrying cost on the duplex
| Carrying cost | Monthly |
|---|---|
| P&I at the qualifying rate | $2,598 |
| Property tax | $290 |
| Full carrying cost (heat is tenant-paid) | $2,888 |
Both units are leased for a combined $2,200/month. The 50% add-back and 80% offset compared below are illustrative of the two common structures; each lender publishes its own.
| TDS line | Bank A — 50% add-back | Lender B — 80% offset |
|---|---|---|
| Income used | $6,100 (incl. half of rent) | $5,000 (no rent added) |
| Full carrying cost / shortfall | $2,888 (full) | $1,128 (shortfall after offset) |
| Car loan | $410 | $410 |
| TDS | 54.1% ✗ | 30.8% ✓ |
The 80% offset applies the $2,200 combined rent against the duplex's own $2,888 carrying cost first, leaving only a $1,128 shortfall in the liabilities; the same file swings 23 TDS points depending purely on which lender's rental-income policy is used.
The solution
A courtier hypothécaire (mortgage broker) licensed by the AMF re-ran the file through a lender whose published policy offsets both units' rent against the duplex's own carrying costs rather than treating the property the way a bank treats a rental kept alongside a primary residence.
Because the file had no primary-residence income cushion to fall back on, the submission leaned entirely on the strength of the two leases:
The lender's underwriter cared most about the leases being real, signed, and at market rent — not about padding the applicant's own income, which the offset treatment made largely irrelevant to the outcome.
The outcome & the closing math
Approved and funded: $368,000 conventional at 80% LTV, 25-year amortization, 5-year fixed term, both units tenanted at closing.
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| Quebec welcome tax (droits de mutation) on $460,000 — 0.5% / 1.0% / 1.5% brackets | $5,010 |
| Legal fees and adjustments | varies |
The lender also required a 90-day paper trail on the $92,000 down payment on top of proof of funds for the welcome tax, which the same bank statements demonstrated.
What to take from this file
- 01A straight investment purchase has no income cushion. Without a primary residence in the file, the rental-income treatment is not a nice-to-have — it decides the file outright.
- 02The add-back vs. offset gap widens when the property is 100% rental. This file swings 23 TDS points on identical leases, wider than a comparable file with a personal-residence income base to fall back on.
- 03Every dollar of closing cash matters more on a thin-margin investment file. Quebec's welcome tax added $5,010 before legal fees, and the lender still wanted a full 90-day trail on the down payment.
- 04A decline is a statement about one lender's rental policy, not the file. The same two leases and the same applicant qualified comfortably once matched to an offset lender.
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%.
- ▸Gouvernement du Québec — Droits sur les mutations immobilières — Quebec's transfer duties ('welcome tax') — 2026 indexed brackets.
- ▸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:
- ▸5.09% contract rate — rates move daily; not a quote.
- ▸20% down / conventional structuring — each lender sets its own down-payment requirement for a non-owner-occupied purchase.
- ▸50% add-back / 80% offset treatments — each lender publishes its own rental-income policy.
- ▸$290/mo tax estimate, tenant-paid heat — lender-standard estimate and lease terms specific to this file.
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.