Total Debt Service Ratio

[mikeberg]

Hello All!

I`m looking at buying a second property with a second mortgage. I currently rent out the property I own which basically covers the mortgage payments. When applying for the second mortgage does the bank take into consideration that the first mortgage payments are covered by my tenants paying rent, in regards to Total Debt Service Ratio, or do they factor in that I already have to make mortgage payments?
Looking for some feedback.

Thanks,

Mike

 

[joewood]

I recently talked to a local mortgage broker about this matter. He said that up to 80% of proven rental income from the first property and 80% of (estimated) rental income from the property being purchased can be considered when calculating the ratio. However, I don`t know if it`s just the broker, the lenders he uses, Ontario-specific, etc. Good luck.

 

[RobMacdonald]

Every bank bank uses some sort of formula to calculate what you`re describing. Depending on whether the purchase is conventional or hi-ratio, will also dictate the calculation of the TDSR.

For conventional, the banks will use either an offset of approximately a 70 to 80% offset, or a calculation of 1.1 DCR, which means you must have 1.1 dollars of income to 1 dollar of expense.

Since each bank is different, it`s important to work with a mortgage broker that understands the different requirements in the industry, and can match your goals and long term objectives to the right institution. Be careful! The wrong decisions today will affect your long term success.