Investment Property Mortgages: What You Need to Know
Real estate investment can be a powerful wealth-building strategy, but financing rental properties comes with different rules than primary residences. Here's your complete guide to investment property mortgages in Canada.
Key Differences: Investment vs Primary Residence
Primary Residence
- ✓ 5% minimum down payment
- ✓ CMHC insurance available
- ✓ Lower interest rates
- ✓ Easier qualification
- ✓ Tax-free capital gains
Investment Property
- • 20% minimum down payment
- • No mortgage insurance
- • Rates 0.15-0.50% higher
- • Stricter qualification
- • Rental income taxable
Down Payment Requirements
Minimum Down Payments for Investment Properties:
- 20% - Single investment property (1st rental)
- 20% - Second investment property
- 25%+ - Third and subsequent properties
- 35%+ - Some lenders require this for multiple properties
How Lenders Calculate Rental Income
Lenders use rental income to help you qualify, but they don't count 100% of it. Here's the typical calculation:
Rental Income Formula
Step 1: Monthly rent × 50% (offset expenses) = Net rental income
Step 2: Add net rental income to your employment income
Step 3: Calculate debt ratios with combined income
Example:
Monthly rent: $2,000
Lender counts: $2,000 × 50% = $1,000/month
This $1,000 helps you qualify for more!
Types of Investment Property Loans
Single Rental Property Mortgage
Standard mortgage for your first investment property. 20% down, rental income can help qualification.
Multi-Unit Financing (2-4 units)
Finance a duplex, triplex, or fourplex. Live in one unit, rent the others. Can qualify with as little as 5-10% down if you occupy one unit.
Portfolio Financing
Special programs for investors with multiple properties. May offer better rates but require larger down payments (25-35%).
Qualification Criteria
What Lenders Look For
- Credit Score: Minimum 680, ideally 700+
- Income Stability: 2+ years employment or business history
- Debt Ratios: GDS under 39%, TDS under 44%
- Cash Reserves: 3-6 months expenses saved
- Property Appraisal: Must support purchase price
Tax Benefits of Investment Properties
Deductible Expenses
- • Mortgage interest
- • Property taxes
- • Insurance
- • Maintenance & repairs
- • Property management fees
- • Utilities (if you pay)
- • Advertising for tenants
- • Legal & accounting fees
Additional Benefits
- • Capital Cost Allowance (depreciation)
- • Principal paydown by tenants
- • Property appreciation
- • Inflation hedge
- • Portfolio diversification
- • Leverage opportunities
Pro Tips for Investment Property Success
- Start small: Buy your first rental before scaling up
- Location matters: Choose areas with strong rental demand
- Run the numbers: Calculate cash flow BEFORE buying
- Factor vacancies: Budget for 5-10% vacancy rate
- Work with specialists: Use brokers experienced in investment mortgages