Clarifying OSFI’s guidance on rental income and mortgage classification
Date: November 14, 2025
The Office of the Superintendent of Financial Institutions (OSFI) recently issued the Final Capital Adequacy Requirements 2026 (CAR) Guideline. On September 11, 2025 OSFI communicated to stakeholders the updates to the Capital Adequacy Guideline. OSFI regularly updates this guideline. This guideline update has prompted several questions on treatment of rental income when qualifying borrowers for mortgages. It is important to note that the CAR update was not about rental properties and there were no changes to the expectations for Income-Producing Residential Real Estate (IPRRE) that have been in place since 2023.
The capital adequacy requirements and the subsequent clarification does not alter Guideline B-20 requirements to qualify borrowers for mortgages, including rental properties.
What has not changed for financial institutions
Financial institutions can continue to apply rental income to underwrite mortgage applications, including for investor-owners with multiple properties. The recent CAR clarification applies to financial institutions only for classifying real estate exposures for capital purposes; not to borrower qualification or underwriting standards as outlined in Guideline B-20.
Financial institutions remain responsible for applying sound judgment and due diligence based on their own risk appetite.
As a principles-based regulator, this approach provides financial institutions flexibility while ensuring the safety and soundness of Canada's financial system.
What this means for borrowers
Investor-owners and other borrowers can continue using rental and non-rental income to qualify for new mortgages including rental properties. The CAR clarification does not require institutions to change underwriting practices or how income is assessed for borrower qualification.
Additional information
On September 11, 2025, as part of regular communications with stakeholders, OSFI clarified existing expectations on how financial institutions should classify their real estate exposures for capital adequacy purposes. Specifically, the guidance reinforces that:
- A mortgage can be classified as General Residential Real Estate (GRRE) only if the borrower's income used to support that classification has not already been used to classify another mortgage as GRRE.
- Income generated from other residential real estate properties should not be considered when classifying a mortgage as GRRE.
- If repayment of a mortgage is materially dependent on cash flows generated by the property—such as rental income—it should be classified as IPRRE, which carries higher capital requirements due to increased risk.
This clarification ensures consistent application of capital rules that have been in place since 2023.
Key distinctions
For income-producing residential real estate, it is essential to understand the difference between OSFI's guidelines:
- The CAR Guideline (Capital Requirements) sets out OSFI's expectations for financial institutions to maintain adequate capital for their exposures. Mortgages that rely heavily on rental income for repayment are considered higher risk and require more capital.
- Guideline B-20 (Underwriting Standards) sets out OSFI's expectations for how financial institutions assess borrower qualifications. It allows rental income to be used in debt service calculations, provided institutions apply rigorous due diligence.