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Rental offset is a method some Canadian lenders use to qualify a rental property purchase, where a portion of the property’s expected rental income is subtracted from its own housing costs (PITH) rather than added to the borrower’s income, before GDS and TDS are calculated.
Lenders treat expected rent from an investment property in one of two broad ways: the offset method nets a portion of the rent against the property’s own PITH before it ever reaches the GDS ratio, while the alternative — sometimes called an income gross-up or add method — adds a portion of the rent directly to the borrower’s own qualifying income instead.
Which method a lender uses, and what percentage of rent it will recognize, is a lender-specific policy rather than a fixed national rule. Whichever method applies, the file is still measured against the same GDS and TDS ceilings and stress-tested at the minimum qualifying rate like any other mortgage.
Net housing cost added to the file = Property PITH − ( Offset % × Gross rent )
Two competing methods: some lenders offset a portion of rent against the property’s own PITH, while others add a portion of rent directly to the borrower’s qualifying income — the approach varies by lender.
Same ratio ceilings apply: insured mortgages still cap GDS at 39% and TDS at 44% regardless of which method is used to treat the rental income.
Still stress-tested: the file is qualified at the minimum qualifying rate — the greater of the contract rate + 2 percentage points or 5.25% — the same as any other mortgage.
Usually an uninsured file: because most non-owner-occupied rentals require the higher down payment threshold, these mortgages are typically financed as uninsured, giving lenders more latitude to set their own offset policy.
A rental property carries a monthly PITH of $1,800 and is expected to generate $1,500 in monthly rent; the lender on this file offsets 50% of gross rent against the property’s own housing costs:
$1,800 − $750 = $1,050. This lender offsets 50% of gross rent; other lenders may add a portion of rent to income instead, or offset a different percentage — the method and rate vary by lender.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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