Mortgage guide
Investment property mortgages: financing rentals in Canada
By Mark Herman, Calgary mortgage broker, MBA in Finance. Last updated .
A non-owner-occupied rental property with one to four units generally requires at least 20% down. Insurance eligibility depends on the property and program; rental financing does not follow the same low-down-payment rules as an owner-occupied home. If you will live in one unit of a small multi-unit property, owner-occupied rules may allow a smaller down payment. Lenders count part of the expected rent toward qualifying, but each lender applies its own method, which is why comparing lenders matters for investors.
Down payment rules for rental properties
For a property you will not live in, most lenders require a minimum of 20% down. CMHC describes insurance for small rental properties of 2 to 4 units, but at a maximum loan-to-value of 80%, so it does not remove the usual 20% down payment requirement. Some lenders may require more depending on the property type, your credit, or how many properties you already own.
Owner-occupied properties are different. If you buy a small multi-unit property and live in one of the units, owner-occupied rules may allow less than 20% down. For insured mortgages, CMHC lists a minimum of 5% on the first $500,000 and 10% on the remainder for owner-occupied one- and two-unit homes, and a minimum of 10% for owner-occupied three- and four-unit homes. Insurers and lenders set additional rules, so confirm current requirements before you make an offer.
Your down payment for a rental generally must come from your own resources, such as savings, investments, or equity from another property. Lenders will want to see the source.
Minimum down payment by property type
Based on CMHC's published rules for insured mortgages. Lenders may require more.
| Property | Minimum down payment |
|---|---|
| Owner-occupied, 1 to 2 units | 5% of the first $500,000, 10% of the remainder (insured, under $1.5 million) |
| Owner-occupied, 3 to 4 units | 10% minimum (insured) |
| Non-owner-occupied rental, 1 to 4 units | 20% (CMHC small-rental insurance capped at 80% loan-to-value) |
How rental income is used to qualify
Lenders do not count rent the same way. Some use an add-back approach, where a percentage of the rental income is added to your gross income. Others use an offset approach, where a percentage of the rent is subtracted from the property's expenses. The percentages and methods vary by lender and by whether the property is owner-occupied.
These differences can change how much you qualify for, especially if you own several properties. Lenders typically want a signed lease, market rent appraisal, or your tax returns showing rental income. As your portfolio grows, some lenders cap how many properties they will finance or apply stricter debt ratio rules.
Using equity from your home to invest
Many Canadian investors use equity in their principal residence for the down payment on a rental. That can mean refinancing the home, generally up to 80% of its value, or using a HELOC. Both add debt secured by your home, so the combined payments need to fit your budget even if the rental sits empty.
Structuring both mortgages together, with the right terms and lenders, can keep future options open. Interest deductibility depends on how borrowed money is used, so involve your accountant before you draw funds.
The BRRRR strategy and its mortgage needs
BRRRR stands for buy, renovate, rent, refinance, repeat. An investor buys a property that needs work, improves it, rents it out, and then refinances based on the higher value to pull out equity for the next purchase.
The financing steps matter. The purchase mortgage should allow you to refinance without a large penalty, so the term, prepayment rules, and lender's refinance policy should be planned in advance. Refinances on rental properties are usually limited to a lower percentage of the property value than on a principal residence, and the appraisal has to support the value you expect.
BRRRR also carries risk. Renovation costs can run over, appraisals can come in low, and rent may take time to stabilize. Keeping reserves and building conservative estimates are essential.
Other costs and considerations for investors
Budget for property taxes, insurance, maintenance, vacancy, property management, and condo fees if applicable. Rental mortgage rates can be higher than owner-occupied rates. A property that only works on paper at full occupancy and no repairs is a fragile investment.
Talk to your accountant about how rental income, interest deductibility, and capital gains will affect you. Mortgage structure and tax planning are closely related.
Tax implications and portfolio growth
Rental income is taxable, and interest on money borrowed to earn rental income may be deductible if the borrowing is traced to that purpose. Selling a rental can trigger capital gains. Whether to hold property personally or in a corporation is a tax and legal decision best made with an accountant and lawyer.
As your portfolio grows, some lenders cap the number of financed properties or tighten debt ratio rules, and larger portfolios may move toward commercial lending. Planning which lender to use for each purchase helps you scale.
Why investors use a mortgage broker
Because lenders treat rental income, portfolio size, and property types differently, the lender that works for your first rental may not work for your fourth. A broker can plan which lender to use for each purchase so you preserve options for future deals.
Mark helps investors map out a financing plan, compare rental income methods, and structure terms so refinances and future purchases are easier. No lender approval is guaranteed, but a plan reduces surprises.
Get pre-approved or call (403) 681-4376.
By Mark Herman, Calgary mortgage broker, MBA in Finance. Last updated . Calgary mortgage broker with 22+ years of experience. General information, not a mortgage approval or personalized financial advice.
Frequently asked questions
What is the minimum down payment for a rental property in Canada?
For a non-owner-occupied rental with one to four units, the minimum is generally 20% because mortgage default insurance is not available. Some lenders may ask for more.
Can I buy a rental with less than 20% down?
If you live in one unit of a small multi-unit property, owner-occupied rules may allow a smaller down payment. Purely investment purchases generally require at least 20%.
How do lenders count rental income?
Lenders use either an add-back or an offset method, with different percentages. The method can significantly change how much you qualify for.
What is a BRRRR mortgage strategy?
It is buy, renovate, rent, refinance, repeat. Investors refinance after improving a property to recover capital. The purchase mortgage should be chosen with the future refinance in mind.
Are rental mortgage rates higher?
They can be, depending on the lender, property, and your profile. Compare rates together with terms, penalties, and refinance policies.
Can I use equity from my home to buy an investment property?
Yes, through a refinance or HELOC, subject to qualifying. Your home secures the borrowing, so plan for vacancies and rate changes.
What is the minimum down payment if I live in one unit?
For insured owner-occupied homes, CMHC lists 5% on the first $500,000 and 10% on the remainder for one- and two-unit properties, and a minimum of 10% for three- and four-unit properties.
What credit score do I need for a rental mortgage?
There is no universal minimum. Lenders set their own criteria, and rental files are often held to stricter standards than owner-occupied ones.
Should I buy a rental personally or through a corporation?
That is a tax and legal question. Speak with an accountant and lawyer; corporate ownership also changes which lenders and products are available.