Refinancing After a Change in Income: What Lenders Look For

Short answer: You can often refinance after an income change, but lenders qualify you on your current, documented income, not what you used to earn. Most want two years of history for self employment, accept pre-leave income with an employer return to work letter for parental leave, and use pension and investment income for retirees. If your new income won’t support a larger mortgage, a smaller refinance, a co-borrower, an alternative lender or waiting until renewal may fit better.

How Lenders Look at Income

• Stability: is it reasonably predictable?
• History: how long have you earned it this way?
• Continuation: will it continue?
• Documentation: can you prove it?

Then they apply debt service ratios and the stress test.

Common Scenarios

Income decreased

Lenders use your current income. Options: refinance conservatively, add a co-borrower, use an alternative lender, or focus on a renewal instead.

Became self employed

Most lenders want two years of self employment, T1 Generals and Notices of Assessment, and sometimes business financials. If you’re new, alternative lenders or short term solutions may bridge the gap.

→ Related: Self Employed Mortgages in Alberta

On parental leave

Many lenders use your pre-leave income with an employer letter confirming your position and return date. See mortgages on parental leave.

Retiring or semi retired

CPP, OAS, pensions, RRIF or investment withdrawals, part time work and rental income can all count with documentation.

Temporary setback

After a layoff or gap, lenders may accept current stable income with an employment letter and recent pay stubs.

Documents to Have Ready

• Salaried or hourly: recent pay stubs, employment letter, T4s and NOAs
• Self employed: two years of T1s and NOAs, business financials, bank statements if needed
• Parental leave: employer letter with position, pay and return date
• Retirees: pension, CPP and OAS statements, RRIF or investment statements

When Refinancing Isn’t Right

If new income is too low, costs outweigh benefits, finances are under ongoing stress, or you’re close to selling. Alternatives include a smaller refinance, other secured or unsecured options, or planning for your next renewal.

How We Help

We understand your new situation, test options with real numbers and build a plan for now or the next six to 24 months. Book a call.

This article is general information, not personal financial advice. Rates, rules and programs change. Talk to a licensed mortgage broker about your situation. Lacroix Mortgage Group is licensed and powered by Mortgage Connection Inc.