The client
A T4 employee earning $6,500/mo, already carrying a $1,900/mo mortgage on a principal residence, buying a $480,000 recreational cottage near Duncan on Vancouver Island at 25% down. The plan was to rent it out on short-term bookings through a five-month peak season — a common structure given how tight Canadian rental vacancy has been, but with no signed annual lease to hand a lender.
Applicant
T4 employee
$6,500/mo income
Existing residence
$1,900/mo mortgage payment
$280/mo tax, $120/mo heat
New purchase
$480,000 recreational cottage, Duncan
Property tax $210/mo
Down payment
$120,000 — 25%
Uninsured, 75% LTV
Booking revenue
$28,000/yr
Five-month season, no signed annual lease
Off-season carrying cost
$90/mo utilities estimate
Lender-standard winterization figure
The cottage's own carrying costs against its seasonal rental income:
| Cottage (rental) | Monthly |
|---|---|
| Mortgage payment (qualifying rate) | $2,510 |
| Property tax | $210 |
| Off-season utilities/winterization estimate | $90 |
| Total carrying costs | $2,810 |
| Annualized rental income ($28,000 ÷ 12) | $2,333 |
The problem
With no signed annual lease — only a five-month booking season worth $28,000 a year — one lender's policy was to add just 50% of the annualized rental income to personal income while still charging the cottage's full carrying costs as a straight liability in TDS.
The partial-add-back arithmetic
- ▸Income used: $6,500 + $1,166 (50% of the $2,333 annualized rent) = $7,666/mo.
- ▸Liabilities: $1,900 + $280 + $120 (own home) + $2,810 (cottage's full carrying costs) = $5,110/mo.
- ▸TDS: $5,110 ÷ $7,666 = 66.7%. Declined.
The shape of the damage is familiar from any add-back treatment: the rent adds only half its value to income, while the cottage's entire $2,810 carrying cost lands in the liability column — even though the actual seasonal rent covers most of it. Without a signed lease to point to, the file had no obvious argument for a gentler treatment.
The numbers
At 25% down (75% LTV) this is a conventional/uninsured purchase — no default-insurance premium, and no CMHC ratio ceiling on the file.
| The uninsured purchase | Amount |
|---|---|
| Purchase price | $480,000 |
| Down payment (25%) | −$120,000 |
| Base mortgage (75% LTV, no default-insurance premium) | $360,000 |
| Rate & payments | Figure |
|---|---|
| Contract rate — 5-year fixed (illustrative, not a quote) | 4.95% |
| Minimum qualifying rate — contract + 2% | 6.95% |
| Monthly P&I at the qualifying rate — the ratios run on this | $2,510 |
| Monthly P&I at the contract rate — what he actually pays | $2,084 |
TDS — partial add-back versus a full offset
| TDS line | Lender A — 50% add-back | Lender B — full offset |
|---|---|---|
| Own-home liabilities (payment + tax + heat) | $2,300 | $2,300 |
| Cottage treatment | $2,810 (full carrying costs, liability) | $477 (shortfall: $2,810 − $2,333 rent) |
| Income used | $7,666 (incl. 50% of rent) | $6,500 (no rent added) |
| TDS vs. an informal 44% comfort line | 66.7% ✗ | 42.7% ✓ |
Under the offset, the rent is netted against the cottage's own costs before anything reaches the ratios, the same offset treatment compared against add-back and net-income methods for ordinary rentals — only the $477 shortfall lands in liabilities, and the file swings from a clear decline to a comfortable pass. Because the file is uninsured this is measured against an informal comfort line, not a CMHC ceiling.
The solution
A BCFSA-licensed submortgage broker re-shopped the file around the missing lease rather than accepting the first lender's treatment as the only option.
First, confirmed the booking revenue with real documentation. A booking-platform history and a comparable-property market-rent opinion supported the $28,000 annual figure even without a signed year-round lease.
Second, matched the file to a lender whose seasonal-property policy offsets the rental against the property's own carrying costs first, rather than adding a discounted share of the rent to personal income while still charging the property's full cost as a liability — the same distinction covered in rental offset.
Third, packaged the off-season cost estimate realistically, using a winterization/utilities figure rather than a full year-round heating cost, since the cottage sits largely dormant outside its five-month season.
The outcome & the closing math
Approved and funded uninsured at 75% LTV, 25-year amortization, 5-year fixed term.
| Cash due at closing (beyond the down payment) | Amount |
|---|---|
| BC Property Transfer Tax on $480,000 — 1% on the first $200,000, 2% on the remainder | $7,600 |
| Legal fees, title insurance & adjustments | varies |
Because this is a second, non-owner-occupied property purchased at 25% down, there is no default-insurance premium to plan for — the closing cash is limited to the transfer tax and standard legal costs.
What to take from this file
- 01No signed annual lease does not mean no usable rental income — a booking history and a market-rent opinion can support a seasonal property's income just as a lease supports a year-round one.
- 02An offset treatment and a partial add-back treatment can move the same file by more than 20 TDS points. Run both before choosing where to submit.
- 03Off-season carrying costs on a seasonal property are lower than a year-round estimate — use a winterization/utilities figure, not a full heating estimate, for the months it sits dormant.
- 04A second property's own carrying costs and income need to be assessed on top of, not instead of, the applicant's existing housing obligations. Both stayed in every TDS calculation here.
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%.
- ▸Property Transfer Tax Act, RSBC 1996, c. 378, ss. 3(1) and 3.01(4) — BC's property transfer tax: 1% / 2% / 3% marginal 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:
- ▸4.95% contract rate — rates move daily; not a quote.
- ▸50% pre-lease rent add-back / full offset — each lender sets its own policy for a seasonal rental without a signed year-round lease.
- ▸the $28,000 annual booking-revenue figure — a booking-platform history and market-rent opinion for a seasonal property, not a signed lease amount.
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.