An investor, Maria, owns a single-family rental property in Calgary valued at $850,000 with an existing mortgage of $350,000. She wants to refinance this property to extract equity to purchase a 4-plex. Her current effective gross income (EGI) from the rental is $4,000/month, and the property's operating expenses (excluding mortgage) are $800/month. A lender requires a minimum Debt Service Coverage Ratio (DSCR) of 1.25 for investment property refinancing. If the new mortgage payment (PITI) after refinancing is projected to be $2,500/month, what is the DSCR for this application, and is it likely to be approved based on this criterion?

Question: An investor, Maria, owns a single-family rental property in Calgary valued at $850,000 with an existing mortgage of $350,000. She wants to refinance this property to extract equity to purchase a 4-plex. Her current effective gross income (EGI) from the rental is $4,000/month, and the property's operating expenses (excluding mortgage) are $800/month. A lender requires a minimum Debt Service Coverage Ratio (DSCR) of 1.25 for investment property refinancing. If the new mortgage payment (PITI) after refinancing is projected to be $2,500/month, what is the DSCR for this application, and is it likely to be approved based on this criterion?

Answer options: ✅ DSCR = 1.33; Potentially approved as it meets the 1.25 requirement.

• DSCR = 1.25; Approved as it exactly meets the requirement.
• DSCR = 1.0; Not approved as it is below the minimum.
• DSCR = 0.88; Not approved, significantly below the minimum.

Correct answer: DSCR = 1.33; Potentially approved as it meets the 1.25 requirement.

Explanation: DSCR is calculated as (EGI - Operating Expenses) / Mortgage Payment (PITI). Here, ($4,000 - $800) / $2,500 = $3,200 / $2,500 = 1.28. This value exceeds the minimum 1.25, suggesting potential approval on this metric.