Blog > The Markham Investorâ€s Cash-Flow Stress Test: Modelling a Renewal at 4.5% vs. 5.5%
The Markham Investorâ€s Cash-Flow Stress Test: Modelling a Renewal at 4.5% vs. 5.5%
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How will a higher mortgage renewal rate affect my Markham rental property cash flow
Many Markham investors who bought near the 2022 price peak are renewing at rates well above their original terms. In the example below, a condo with a $480,000 mortgage and $2,700 monthly rent has net operating income of about $1,537 a month after vacancy, fees, tax, insurance and a repair reserve. At 4.5% over 25 years, the payment is about $2,657; at 5.5%, about $2,930. That is a monthly shortfall of roughly $1,120 to $1,390. The three main responses are paying down principal, extending the amortization, or repositioning into a property with more income. Run your own numbers well before renewal.
Why Every Investor Should Stress Test Before Renewal
A rental that worked at a low fixed rate can turn cash-flow negative at renewal. Fees, taxes and insurance also tend to rise over time, while rents do not always keep pace. Testing two or three renewal rates in advance shows how much cushion you have and which options to start preparing now.
Michael John Lau, a REALTOR® with the Kaizen Real Estate Team, one of the most active real estate teams in Markham and York Region, helps investors model hold, sell and reposition scenarios side by side, so decisions are made months before the renewal letter arrives.
All figures are an illustration, not a forecast. Rates of 4.5% and 5.5% are scenarios only. Mortgage payments use Canadian semi-annual compounding.
Step One: Build the Monthly Model
| Line | Example monthly amount |
|---|---|
| Gross rent | $2,700 |
| Less vacancy and credit loss (4%) | −$108 |
| Less condo fee | −$650 |
| Less property tax | −$260 |
| Less landlord insurance | −$45 |
| Less repair and replacement reserve | −$100 |
| Net operating income (NOI) | $1,537 |
Replace each line with your own figures: actual rent, the current fee and tax bill, and a realistic reserve for appliances, flooring and painting between tenants.
Step Two: Test Two Renewal Rates
| Scenario on a $480,000 balance | Monthly payment | Cash flow after payment | DSCR |
|---|---|---|---|
| 4.5%, 25-year amortization | $2,657 | −$1,120 | 0.58 |
| 5.5%, 25-year amortization | $2,930 | −$1,393 | 0.52 |
| 5.5%, 30-year amortization | $2,707 | −$1,170 | 0.57 |
The debt service coverage ratio (DSCR) divides NOI by the mortgage payment. Below 1.0, rent does not cover the debt. Commercial lenders often look for 1.2 or higher; residential lenders use their own rental income rules. This example shows why many GTA condo investors carry the property from other income.
Facing a renewal on a Markham rental? Call Michael John Lau, REALTOR®, at (416) 700-0286 to compare hold, sell and reposition options with current values.
Step Three: Add Rising Costs
Costs rarely stand still. Wahi’s 2026 GTA condo fee report noted typical fee increases of 2% to 5% a year. At 3% a year, a $650 fee becomes about $754 in five years. Property taxes, water rates and insurance also tend to rise. In a freehold rental, the owner usually pays water and more of the maintenance. Add these increases to your model for each year of the next term, so the plan reflects costs at the end of the term, not just the start.
What If Rent Rises?
Rent helps, but often less than investors hope. If rent in the example rose from $2,700 to $2,900 a month, vacancy at 4% would be about $116, and NOI would rise to about $1,729. At 5.5% over 25 years, the monthly shortfall would shrink from about $1,393 to about $1,201. Raising rent on a sitting tenant is also limited by Ontario’s rules for units covered by the guideline, so most large rent changes happen only between tenants.
The lesson is that the mortgage rate and the balance usually matter more than small changes in rent. That is why the paydown and amortization options below deserve careful thought.
Step Four: Choose a Strategy
| Strategy | How it helps | Trade-off |
|---|---|---|
| Capital paydown at renewal | Reducing the balance to $400,000 at 5.5% over 25 years lowers the payment to about $2,442 | Ties up $80,000 that could earn a return elsewhere |
| Extend the amortization | Lowers the payment, as shown in the 30-year scenario | More interest over time, and lender approval may be required |
| Reposition | Sell and buy a property with more rental income, such as a home with a legal secondary suite | Selling and buying costs, taxes and new risks |
For multi-unit options, see basement apartment vs. garden suite for rental income.
Renewal Tips
- Start early: many lenders offer renewal terms about four to six months before maturity.
- Shop around: federal rules no longer require a stress test for uninsured borrowers who switch lenders at renewal without increasing the loan, which makes shopping easier.
- Review the term: compare fixed and variable options, and the length of the term, with your mortgage professional.
- Check rent: Ontario’s 2026 rent increase guideline is 2.1% for units it applies to; units first occupied after November 15, 2018 are exempt.
Hold, Sell or Reposition?
Holding makes sense if you can carry the shortfall comfortably and expect long-term growth. Selling makes sense if the shortfall strains your finances, if the building faces a large special assessment, or if another investment would work harder. Repositioning makes sense if a different property type offers better income for similar risk. Speak with an accountant about the tax effects of selling or restructuring before you decide.
Ultimately, the decision is yours. The goal is to make sure you have all the information before renewal.
Next Steps
- Real estate investing in Markham: compare properties and income.
- Mortgage calculator: test your own renewal rates.
- Request a free home evaluation: know your property’s current value.
Frequently Asked Questions
How do I stress test my rental property cash flow?
Start with rent, subtract vacancy, fees, tax, insurance and a repair reserve to get net operating income, then compare it with the mortgage payment at two or three possible renewal rates.
What is a debt service coverage ratio?
It is net operating income divided by the mortgage payment. A ratio below 1.0 means rent does not cover the debt payment.
How much more is a payment at 5.5% than 4.5%?
On a $480,000 balance over 25 years, the payment rises from about $2,657 to about $2,930 a month, using Canadian semi-annual compounding.
Can I extend my amortization at renewal?
Sometimes. It depends on the lender and your mortgage type, and it may require approval. It lowers the payment but increases total interest.
Do I need to pass the stress test to switch lenders at renewal?
Federal rules no longer require a stress test for uninsured borrowers who switch lenders at renewal without increasing the loan. Confirm with your mortgage professional.
What is Ontario’s 2026 rent increase guideline?
The 2026 guideline is 2.1%. It does not apply to units first occupied for residential purposes after November 15, 2018.
Work With Michael John Lau in Markham
Michael John Lau helps Markham investors look ahead to renewal with clear numbers on value, rent and options. He works alongside your mortgage professional and accountant to compare holding, selling and repositioning. The goal is an investment plan that works through changing rates.
📞 Contact Michael John Lau, REALTOR®
🌐 www.callmikelau.com
Renewing a Markham rental?
Michael John Lau can help you compare hold, sell and reposition scenarios with current market values.
Michael John Lau, REALTOR® · Markham, Ontario · (416) 700-0286
Disclaimer. Michael John Lau is a licensed REALTOR® serving buyers and sellers in Markham, Ontario and the Greater Toronto Area. The cash-flow model is an illustration using example figures, not a forecast. Condo fee growth is from Wahi’s 2026 GTA condo fee report. The rent guideline is Ontario’s 2026 figure. Mortgage payments are approximate. Michael John Lau is not a lawyer, accountant, tax advisor or mortgage professional. This article is general information, not legal, tax or financial advice. Speak with a qualified professional about your own situation.