Coming in January 2026, banks will be required to apply a new risk assessment when lending for mortgages on Income-Producing Residential Real Estate (IPRRE). This new regulation from OSFI (the Canadian bank regulator) means anyone seeking to qualify for a mortgage on a rental property, using rental income (of over 50%) from that property, will be impacted. Banks will be required to hold more capital in reserve when lending for these types of mortgages. The end result will affect rental property mortgage-holders through higher scrutiny, stricter lending terms and interest rates.
Here are the highlights on the new OSFI regulations:
Each mortgaged property must have its own income stream: Lenders can no longer use the same income source to qualify a borrower across multiple properties. This means income used to qualify for one mortgage cannot be counted again for another.
Stricter rules for income-producing real estate: If mortgage repayment depends heavily on rental income from that property (over 50%), lenders must classify the loan as “Income-Producing Residential Real Estate,” which carries stricter approval standards.
Short-term rental tax rules: The Canada Revenue Agency (CRA) will no longer allow expense deductions (including mortgage interest) for short-term rentals that are not licensed or permitted under local rules.
There is currently no information on how this will impact rental properties up for mortgage renewal. However, with the option of annual rent increases (up to 3% with 3 months notice) higher rates may be passed on to current renters. Also note if your rental property mortgage is not funded by over 50% of income from that property you may avoid the IPRRE flag.
I will keep you up to date with more information from OSFI on this topic as it unfolds….
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