Investment Property Mortgages: What You Need to Know

Building wealth through rental property investment is a proven strategy for Canadians. However, financing investment properties works differently from your primary residence. Here's everything you need to know about getting started.

Investment Property vs. Second Home

Understanding the distinction matters for financing:

Investment Property:

• Primarily for rental income
• Higher down payment required
• Different tax treatment
• Higher interest rates

Second Home:

• For personal/family use
• May have occasional rental
• Lower down payment possible
• Different qualification criteria

Down Payment Requirements

Investment properties require a minimum 20% down payment—no exceptions.

Why? CMHC insurance isn't available for investment properties. Lenders view rentals as higher risk.

Tip: The 20% minimum opens more doors, but having 25%+ gives you access to better rates and more lender options.

How Lenders View Rental Income

Lenders consider rental income to help you qualify, but not at 100%:

• Typically 50-80% of rental income can be added to your qualifying income
• Some lenders use rental offset calculations
• You may need a signed lease or market rent appraisal

Example:

• Rental property generates $2,500/month
• Lender uses 80%: $2,000/month added to your qualifying income
• This helps you qualify for a larger mortgage

Ready to Invest in Real Estate?

Apply now to explore your investment property financing options. Our team specializes in rental property mortgages.

Interest Rates for Investment Properties

Expect slightly higher rates:

• Usually 0.10% to 0.25% higher than owner-occupied rates
• Rates vary significantly between lenders
• A broker can help you find the best deal

Building a Portfolio

If you're looking to own multiple properties:

• Most lenders limit rental properties they'll finance (typically 4-5)
• Portfolio lenders may offer better solutions
• Consider commercial financing for larger portfolios
• Self-employed investors may face additional scrutiny

Tax Considerations

Consult with a tax professional about:

• Deducting mortgage interest: Interest is tax-deductible
• Capital gains implications: Profit on sale is taxable
• Rental income reporting: All rental income must be declared
• Property expense deductions: Repairs, property management, etc.

> Pro tip: Proper structuring can significantly reduce your tax burden. Professional advice is worth it.

Due Diligence for Investment Properties

Before buying, analyze:

1. Cash flow: Rent minus all expenses (mortgage, taxes, insurance, maintenance, vacancy)
2. Cap rate: Net operating income ÷ Purchase price
3. Location fundamentals: Employment, population growth, rental demand
4. Property condition: Avoid costly surprises
5. Tenant quality: Current lease terms and history

FAQ

Q: Can I use a HELOC from my primary residence for the down payment?
A: Yes, this is a common strategy. The HELOC interest may be tax-deductible since it's used for investment purposes.

Q: Do I need landlord experience to qualify?
A: No, but having a property management plan helps. Some lenders prefer experienced landlords.

Q: Can I buy an investment property as my first property?
A: Technically yes, but lenders prefer you have a primary residence first. You'll also need 20% down.

Q: What's the minimum credit score for investment mortgages?
A: Generally 680+, though 720+ gets better rates.

What's Next

Explore investment property financing with our specialized team. We'll analyze your situation, rental income potential, and find the best mortgage structure for your investment goals.