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Aleksey Tsoy Mortgage Agent · Licence #M20001520
(647) 761-1646
Investment property · Toronto & the GTA

Investment property mortgages in Toronto

Rental financing is a different underwriting exercise from a home you live in. The down payment is higher, the rules are stricter, and how a lender counts your rental income decides everything.

  • 20% minimum down on a rental — insurance is not available
  • Lenders differ enormously on how they count rental income
  • Portfolio strategy for a second, third or fourth property
  • Equity from your home is often the cheapest down payment
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The rules are different from a home you live in

Mortgage default insurance is not available on a property you do not occupy, which sets the floor: a minimum 20% down payment on a rental, regardless of purchase price. There is no tiered 5%/10% calculation here and no insured 30-year amortization. Many lenders want more than 20% on smaller rentals or on multi-unit properties.

Because the mortgage is uninsured, the stress test always applies — you qualify at the greater of your contract rate plus 2% or 5.25%, not at your actual rate.

The variable that actually decides your file is how the lender treats the rental income, and the variation between lenders is larger here than almost anywhere else in Canadian lending. Some add a percentage of the rent to your income. Some offset a percentage of the rent against the property's expenses. Some apply a debt-coverage test to the property on its own. The same borrower, same property, same rent can qualify comfortably with one lender and be declined by another purely on methodology. This is the single strongest argument for not simply asking your own bank.

What lenders examine

How the rent is counted

Add-back, offset or debt-coverage. This one choice moves your qualifying amount more than the rate does. Lenders generally want a signed lease, or an appraiser's market-rent opinion for a vacant unit.

Down payment source

20% minimum, and the source must be documented. Equity drawn from your own home via a HELOC or refinance is the most common and usually the cheapest source.

Number of properties you already own

The first rental is comparatively easy. Many lenders cap how many financed properties they will hold for one borrower — often in the range of four to five — and beyond that you move toward lenders that underwrite the portfolio rather than the property. Planning the order of your purchases matters.

Property type and unit count

A single-family rental or a condo is straightforward. Two to four units is still residential lending but narrows the lender list. Five units or more is commercial underwriting — different lenders, different terms, different timelines.

Condo-specific review

For a Toronto condo rental the lender reviews the corporation's reserve fund, finances and any litigation, and some lenders decline buildings where investor ownership is very high. Worth checking before you firm up.

Short-term rental plans

If you intend to run it as a short-term rental, say so up front. Many lenders will not finance on short-term rental income and some prohibit it outright. Municipal licensing rules in Toronto apply as well. Being straight about this at application avoids a declined file later.

Where the down payment usually comes from

For most Toronto investors the cheapest 20% is not cash — it is equity already sitting in their own home. Drawing it out via a refinance or a HELOC typically costs a fraction of any other borrowing available for this purpose, and it means the funds are ready before you make an offer rather than after.

Which route to use depends on your prepayment penalty: a HELOC leaves your existing mortgage untouched and triggers no penalty, while a refinance gets first-mortgage pricing but breaks the mortgage. Near renewal, refinance; mid-term with a big penalty, usually the HELOC. I price both.

One caution worth stating. Using your home as the source of a rental down payment links the two properties financially. If the rental sits vacant or the tenant stops paying, the obligation is still secured against where you live. That is a manageable risk with a buffer and realistic rent assumptions, and a serious one without.

FAQ

Honest answers

How much down payment do I need for a rental property in Toronto?
At least 20%, because mortgage default insurance is not available on a property you do not occupy. There is no tiered 5%/10% option as there is for an owner-occupied home. Some lenders want more than 20% depending on the property type, the unit count or your existing portfolio.
Will lenders count my rental income?
Yes, but how they count it varies enormously and that variation decides your file. Some add a percentage of the rent to your income, some offset a percentage against the property's expenses, and some apply a debt-coverage test to the property alone. The same application can pass easily at one lender and fail at another on methodology alone, which is why comparing matters more here than on an owner-occupied purchase.
What's the maximum LTV on a rental property refinance in Toronto?
Most lenders cap a rental refinance below the 80% available on an owner-occupied home — commonly around 75%, and sometimes lower on multi-unit or less conventional properties. It varies by lender and by property, so it is worth establishing before you build a plan around a particular figure.
How many investment properties can I finance?
It depends on the lender. Many cap the number of financed properties they will hold for one borrower, often around four or five, after which you move toward lenders that underwrite your portfolio rather than each property in isolation. If you intend to build a portfolio, the order in which you use lenders matters — using the most restrictive one first is a common and avoidable mistake.
Can I use my home's equity for the down payment?
Yes, and it is the most common approach. A HELOC or a refinance on your own home usually provides the cheapest available funds for a rental down payment. Which is better comes down to your prepayment penalty and how near you are to renewal. Just be clear that it ties the two properties together financially.
Can I finance a short-term rental in Toronto?
It is harder, and you must disclose the intention. Many lenders will not underwrite on short-term rental income and some prohibit short-term rental use in their terms. Toronto also has its own licensing and principal-residence rules for short-term rentals. If that is the plan, we need to start with lenders who permit it rather than discovering the restriction at closing.

Related

Home equity and HELOCWhere the down payment usually comes from.RefinancingPulling equity out of your existing home.Self-employedIf your income comes from your own business.Buying a home in TorontoOwner-occupied purchases.Toronto area guideHow the GTA markets differ.

Plan the financing before you make an offer

Especially if this is your second or third property — the order you use lenders in decides how far you can go.

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Aleksey Tsoy · Mortgage Agent (Level 1) · Licence #M20001520 · Centum Financial Services LP · Brokerage Licence #13054