What You Need to Know About OSFI’s New Rental‑Mortgage Rule (Made Simple)

If you already have a mortgage on your home and are thinking about buying a rental property, you may have seen headlines about OSFI (the federal regulator) putting new rules in place. The problem is: many of those headlines overshoot or misinterpret what’s changing — and that causes unnecessary worry.

Let’s break it all down in a friendly, understandable way. By the end, you’ll see what really matters, what doesn’t change, and how to position yourself smartly. 

What is OSFI, and why should you care?

OSFI (Office of the Superintendent of Financial Institutions) is the regulator for federally regulated banks and other financial institutions in Canada. One of its jobs is to make sure banks hold enough “capital buffers” to be safe — so they don’t collapse when things go wrong.

Banks don’t simply lend money without consequences. For every loan they issue, they have to reserve a portion of their own money (capital) to protect against losses. The more risk a loan is judged to carry, the more capital the bank must set aside. That cost — and how banks view risk — trickles down to you, the borrower.

So when OSFI changes how banks are supposed to treat certain types of mortgages, that can influence interest rates or how easy it is to get approved — without changing the mortgage rules on paper. 

What sparked this update?

The specific change relates to income‑producing residential real estate (IPRRE). That’s fancy speak for condo units, duplexes, or rental houses — basically, properties where you depend on rental income (or property cash flows) to repay the mortgage.

OSFI wants banks to identify these “income‐producing” properties more clearly and treat them as somewhat riskier if the mortgage depends heavily on the rental income itself. Under this change, lenders must:

Figure out when a rental mortgage is “materially dependent” on the property’s cash flow (i.e. the rent) for repayment,
And make sure the income used in underwriting doesn’t double‑count money that’s already committed to other mortgage obligations.
In short: OSFI is tweaking how banks classify these loans and how much risk weight they assign to them. That affects how much capital the bank must hold. The more capital required, the more cautious (or expensive) the lending becomes.

Important nuance: OSFI does not intend to change how you qualify for a mortgage — this is about how banks manage risk behind the scenes.

OSFI itself clarified that this guidance has no direct underwriting implications — it’s “solely for the purpose of determining whether a new mortgage must be classified as materially dependent on cash flows from the property.” (i.e., rental income)

Also worth noting: in the final version of the revised capital guideline, OSFI removed the newly proposed definition of IPRRE (income producing residential real estate) from the draft and kept the prior approach: a loan is IPRRE if more than half of the income used to qualify it comes from the property’s cash flows.

But it also explicitly restates that when a borrower has multiple mortgages, the income used to qualify for other properties should be removed first. 

So the key principle: you can’t “reuse” income you already used to validate another mortgage when trying to classify a loan as income‑producing.

Let’s use an example

Imagine this scenario:

• You make $200,000/year from your job (or other stable sources).
• You currently have a mortgage on your primary home that uses $50,000/year of that income to qualify.
• You now want to buy a rental condo and need to show additional income to service that mortgage.

Under the new rule, the bank must net out the $50,000 already used. That leaves you with $150,000/year to apply toward the new mortgage. If the new rental mortgage requires $90,000/year, then:

• $90,000 / $150,000 = 60%
• Because more than 50% of your qualification income is coming from the rental property itself, the loan will be classified as materially dependent on property cash flow (i.e. IPRRE).
  

With that classification, the bank must assign a higher risk weight (say 50%) instead of a lower weight (e.g. 35%) under OSFI’s capital rules. That might force the bank to charge a bit more or tighten criteria.

If instead the new mortgage only needed $70,000 — that’s less than 50% of the $150,000, so it may not get that higher risk classification.

What isn’t changing (even though many believe it is)

This is where confusion has flourished in recent days:

• You’re not disqualified from using your own income just because you have another mortgage. You can still qualify for a new loan if there’s leftover income after covering existing obligations.
• It’s not about how your mortgage is approved — the rules for qualifying (credit checks, income verification, debt ratios) aren’t being replaced or overridden.
• It’s not an automatic rate jump. The change is about risk classification for capital requirements, not underwriting rules. Banks may respond with small rate adjustments — but only if their cost of capital or risk profile changes materially.
• It doesn’t matter whether your first mortgage is with a federally regulated bank or not — OSFI treats it the same for this purpose. The rule is about capital classification, not lender type.
   

  Why does OSFI care?

  It’s all about making sure banking systems are safe.

If a mortgage depends heavily on rental income (which can be volatile), it’s riskier. If the rent drops (vacancy, economy, tenant problems), the borrower might struggle. If many borrowers struggle at once, the bank could take heavier losses. So, OSFI wants banks to hold extra capital for those risks.

Banks don’t hold capital simply as a cushion — they must link it to how risky their assets (loans) look on paper. The concept is called Risk‑Weighted Assets (RWA):

RWA = Loan Exposure × Risk Weight
If interest rates or conditions change, a higher risk weight means the bank must reserve more capital. That extra cost may filter down to you in slightly higher mortgages or stricter underwriting.

In other words, this is a regulatory cost, not a direct new rule on your mortgage. 

What to watch for (and what to do)

What to watch for:

• Slight increases in interest rates for rental mortgages, especially if your rental depends significantly on rent income.
• Stricter underwriting when a new mortgage is heavily reliant on rental income rather than your own income.
• Lenders getting more conservative in approving rental property deals with tight margins.
• Banks shifting their appetite (i.e., being more selective) on investment property clients.
  

What you can do:

• Do your math in advance — know how much of your income is “used up” and how much net income is available.
• Build buffer room — aim to use less than 50% of your qualifying income from rental income; banks will favor that.
• Talk to a mortgage broker early — get help structuring the deal before applying.
• Lock in favourable terms if possible — if you can get a better rate now, doing so can insulate you from future shifts.
• Plan for contingencies — consider rent drops, vacancy, and other risks in your cash flows.
  

Final thoughts (and key takeaway)

This change is mostly about how banks must treat rental mortgages, not about you being punished or disqualified. You still get to use your income — as long as you didn’t already use it for another mortgage.

Key takeaway: As long as there’s leftover qualifying income after accounting for your existing mortgage, that leftover income can help you qualify. The new rules only kick in when a rental mortgage is too dependent on rental income itself. In those cases, banks must reserve more capital - and that might nudge up your rate or tighten your underwriting.

Let's connect to explore your options: email me at [email protected] or book a call here: www.MortgageCall.ca