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Rental Offset

“Rental offset” is the percentage of rental income a borrower receives that the lender is willing to use to qualify him/her for a mortgage.

Rental offset is typically 50-80%, with a limited number of lenders allowing up to 100% on conventional mortgages.  This percentage of rental income is deducted from the borrower’s debts to determine his/her debt ratio.

Here’s an example of how rental offset is used to calculate a borrower’s total debt service (TDS) ratio:

PITH + Other Debts – ( Rental Offset x Rental Income )

Borrower’s Income

PITH  =  Principal, interest, property taxes, heat, and 1/2 of condo fees. PITH generally takes into account housing costs from all the borrower’s properties.

Keep in mind, lenders have many different forumulas for calculating debt ratios with rental income, so check your lender’s guidelines.

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Last modified: April 29, 2009

Robert McLister is one of Canada’s best-known mortgage experts. A mortgage columnist for The Globe and Mail, interest rate analyst and editor of MortgageLogic.news, Rob has been covering Canada's mortgage market since 2007.