Refinance a rental property: how lenders count your rental income
Pulling equity from a rental? Learn the 80% refinance limit, the add-back and offset methods lenders use for rental income, the stress test, and how CRA treats interest depending on how you use the funds.
You can usually refinance a rental property in Canada up to 80% of its appraised value minus what you owe. Lenders count part of the rent toward your income using an add-back or offset method, and that choice often decides how much you qualify for. Federally regulated lenders still apply the stress test. For tax, CRA generally allows an interest deduction only when the borrowed money is used to earn income; extra interest on funds used personally isn't deductible against rental income. Check your prepayment penalty before breaking mid-term. OAC.
Key takeaways
- →A rental refinance is generally capped at 80% of appraised value, minus your current balance.
- →Lenders count rent with an add-back or offset method; the share counted varies by lender and changes what you qualify for.
- →The stress test applies: qualifying at the higher of 5.25% or your contract rate plus 2 points.
- →CRA looks at how you use the money: interest on funds used to earn income is generally deductible; personal-use interest isn't.
- →Breaking a fixed term can trigger a penalty; compare refinancing now, at renewal, or a HELOC or second mortgage.
Short answer: To refinance a rental property in Canada, you can usually borrow up to 80% of its appraised value, minus what you owe [1][2]. Lenders count part of the rent toward your income, but each uses its own method, and that often decides how much you qualify for. For tax, what you spend the money on matters: CRA generally allows an interest deduction only when the borrowed money is used to earn income [4][5].
This guide is for owners of a condo, house or 2–4 unit property they rent out, who want to pull equity for another purchase, renovations or to pay down other debt. It covers the borrowing limit, how rental income is counted, the tax angle and the costs of breaking your current mortgage. For a revolving alternative, see our guide to a HELOC on a rental property. When you're ready, explore refinancing options.
How much can you borrow?
A refinance replaces your current mortgage with a larger one. FCAC notes refinancing lets you borrow up to 80% of your home's appraised value [1], and OSFI's Guideline B-20 sets the 80% limit for federally regulated lenders' uninsured mortgages [2]. Refinances on rental properties are generally uninsured, so that cap applies.
Example (illustrative): rental valued at $600,000; current mortgage $300,000.
- 80% of value = $480,000 maximum new mortgage.
- Cash available before costs = $480,000 − $300,000 = $180,000.
- Subtract any prepayment penalty, legal and appraisal costs to get the net amount.
In our experience, some lenders cap rental refinances below 80%, or price them higher than owner-occupied homes. Shopping several lenders matters more here than on a typical home refinance.
How lenders count your rental income
Lenders don't all treat rent the same way. The two common approaches are:
| Method | How it works | Effect |
|---|---|---|
| Add-back | A share of the gross rent is added to your income, then the full property costs count as debts | Helps if your personal income is strong |
| Offset | A share of the rent is subtracted from the property's costs; only the shortfall, if any, counts as a debt | Usually more generous for investors with several properties |
The share of rent counted, and which method is used, varies by lender and can change — there is no single government percentage for an uninsured rental refinance. Ask how the lender will treat your rent before you apply.
Lenders will want proof of rent: signed leases, and often your tax documents showing rental income. If you own a 2–4 unit property and live in one unit, many lenders also count rent from the other units.
The stress test still applies
Federally regulated lenders qualify uninsured mortgages at the higher of 5.25% or the contract rate plus 2 percentage points [3]. On the $480,000 example over 25 years, that's about $2,654 a month at an assumed 4.49% contract rate, but you'd qualify on about $3,212 a month at 6.49%. Rates are illustrative assumptions as of November 7, 2026, not offers.
Pulling equity from a rental? A licensed 8Twelve agent can compare how 65+ lenders count your rental income and price your refinance, OAC. Explore refinancing
The tax side: use of funds
CRA looks at what the borrowed money is used for, not what property secures the loan [5]. In general:
- Used to buy or improve a rental, or for another income-earning purpose: interest is generally deductible [4][5].
- Used for personal purposes, such as a down payment on your own home or a vacation: CRA says the extra interest from refinancing isn't deductible against your rental income [4].
- Principal repayments aren't deductible [4].
If you mix uses, keep clear records of where each dollar went. Talk to a tax professional before you draw the funds; tracing the money cleanly at the start is much easier than reconstructing it later.
What it costs to refinance mid-term
If your current term hasn't ended, breaking the mortgage can trigger a prepayment penalty. On fixed rates, this is often the higher of three months' interest or the interest rate differential [7]. Add legal fees and an appraisal. See refinance costs in Canada for a breakdown.
If your renewal is within a few months, waiting and refinancing at maturity can avoid the penalty. If you need funds now and don't want to break the first mortgage, a HELOC (up to 65% of value [6]) or a second mortgage are alternatives.
Refinance vs HELOC vs second mortgage on a rental
| Option | Maximum (general) | Breaks your first mortgage? | Fits best when |
|---|---|---|---|
| Refinance | Up to 80% of value [1] | Yes, unless at renewal | You need a large lump sum and the penalty is small or you're near renewal |
| HELOC | Up to 65% of value [6] | No, if added behind the existing mortgage | You want to draw in stages, such as for renovations |
| Second mortgage | Up to 80% combined, per lender [1] | No | You need funds now and the first mortgage has a large penalty |
General limits from FCAC; lenders often set tighter limits on rental properties, OAC. Second mortgages usually cost more and run short terms.
Common reasons a rental refinance stalls
- Appraisal comes in low. Your room is based on the lender's appraised value, not your estimate. A lower value shrinks the cash available.
- Rent doesn't show on your tax return. If rental income isn't reported, or a new tenant has just moved in, many lenders won't count the full rent.
- Too many properties for one lender. There is no single OSFI cap on how many rentals one borrower may hold. In our experience, individual lenders still set their own portfolio limits, so investors with several units may need a different lender.
- Negative cash flow. If the property's costs exceed the rent the lender counts, the shortfall adds to your debt ratios.
Step by step
- Estimate value and room: 80% of value minus your balance [1].
- Get your penalty quote from your current lender [7].
- Gather leases and tax documents showing rental income.
- Compare lenders' rental-income methods and rates.
- Plan the use of funds with your tax professional [4][5].
- Close through your lawyer, who pays out the old mortgage and registers the new one.
To refinance a rental property, start with the 80% limit, then find a lender whose rental-income method suits your file, and plan the use of funds for tax before closing. For general rules, read mortgage refinance requirements in Canada. If you're self-employed, see self-employed refinancing.
This article is for general information only and isn't financial, legal or tax advice. Rates, products and terms change without notice and are available on approved credit (OAC). The rate and terms you qualify for depend on your individual financial situation, including credit, income, property and loan-to-value. "Best rates" means the most suitable options available for your situation, not a guarantee of the lowest rate. Example rates and payments are for illustration only, as of November 2026, and are not an offer. 8Twelve Mortgage arranges mortgages through 65+ lenders and does not lend directly. Licensed across Canada — see our licences.
The example uses an assumed property value, balance and rates, with semi-annual compounding over 25 years. Rental-income methods are described from our experience and vary by lender. Tax points are summarized from CRA guide T4036 and Income Tax Folio S3-F6-C1; speak with a tax professional about your situation. Rules checked against FCAC, OSFI and CRA materials on November 7, 2026. 8Twelve does not fund second or private mortgages; we arrange them with third-party lenders, and any lender or brokerage fees are disclosed in writing before you commit.
Frequently asked questions
Sources
- Borrowing against home equity - FCAC
- Guideline B-20: Residential mortgage underwriting practices and procedures - OSFI
- Minimum qualifying rate for uninsured mortgages - OSFI
- Rental Income, T4036 (interest and refinancing for personal use) - Canada Revenue Agency
- Income Tax Folio S3-F6-C1, Interest Deductibility - Canada Revenue Agency
- Home equity lines of credit - FCAC
- Breaking your mortgage contract - FCAC
- Clarifying OSFI's guidance on rental income and mortgage classification - OSFI
Last reviewed on November 10, 2026