Rent-to-Own in Canada: Does It Help Build Credit for a Mortgage?

In Canada’s housing market, where affordability remains a challenge, Rent-to-Own (RTO) programs have gained attention as a potential solution. 

Many people who dream of homeownership but struggle to save for a down payment or have less-than-perfect credit may see RTO as a way to build towards owning a home. 

It sounds like a great deal, right?

But does Rent-to-own credit building in Canada help when it comes to getting a mortgage in the future?

 Let’s understand all the details effectively.

How Rent-to-Own (RTO) Works in Canada’s 2025 Market?

In simple terms, Rent-to-Own means you rent a home with the option to buy it later. A portion of your rent payments goes toward the home’s future down payment or purchase price. 

This arrangement is popular in Canada, especially in 2025’s tight housing market, where prices are high and saving for a down payment is hard.

The idea is that over a period (usually 1 to 5 years), you build up enough savings or equity to eventually buy the home. 

But there’s one big question: Does participating in a Rent-to-Own program help you build credit for a mortgage? Let’s explore.

How Does Rent-to-Own (RTO) Affect Credit?

When you buy a home, your credit score plays a crucial role. A higher score can help you secure a mortgage with better terms, including lower interest rates. 

So, if you're hoping that Rent-to-Own can help you build your credit, here's what you need to know.

Positive Impact of RTO on Credit

1. Rent Payments May Be Reported to Credit Bureaus

In some cases, Rent-to-Own landlords may report your rent payments to the credit bureaus (like Equifax and TransUnion). This can be helpful if you're building or repairing your credit. Regular, on-time payments can show lenders that you're responsible with money.

2. Shows Consistent Payment History

Paying rent on time every month can give you a solid history of consistent payments. Credit bureaus like to see that you manage your financial obligations well. Over time, a good payment history can help increase your credit score.
 

If you're looking to qualify for a mortgage in the future, having a history of regular payments will make you look like a lower-risk borrower to lenders. It might even help you get a better interest rate!

 

Negative Impact of RTO on Credit

1. Missed Payments Hurt Credit

On the flip side, if you miss a rent payment, it can hurt your credit. Just like with any loan or bill, missed payments will likely be reported to the credit bureaus. Late or missed payments can lower your credit score, making it harder to get approved for a mortgage later.

2. No Guarantee Lenders Will Count RTO as "Mortgage Prep"

Another potential downside is that even if you’ve made all your rent payments on time, lenders might not view Rent-to-Own as "mortgage preparation". While Rent-to-Own can show you're financially responsible, it doesn’t always translate into credit history the same way a regular mortgage or loan would.

Mortgage lenders prefer to see a traditional mortgage history. Some may not give much importance to your Rent-to-Own payment history, especially if it’s not reported to the credit bureaus. This means you might still need to prove your creditworthiness through other means.

 

What are the Hidden Costs & Risks of Rent-to-Own (RTO)?

While Rent-to-Own can be a great path toward homeownership for some, it also comes with certain risks and costs that you should be aware of.

1. Upfront Option Fee: 2%-5% of Home Price (Non-Refundable)

To secure a Rent-to-Own agreement, you’ll often need to pay an option fee upfront. This is typically between 2% and 5% of the home’s price and is non-refundable. This means that if you decide not to buy the house at the end of the lease term, you won’t get this money back.

This upfront cost can be quite large—especially if you're considering homes priced at $500,000 or more. It’s important to factor this fee into your budget, as it will add to the overall cost of the RTO agreement.

2. Higher Monthly Payments: Part Goes Toward Future Down Payment

In a Rent-to-Own arrangement, part of your monthly rent payment is credited toward the future purchase price of the home. 

However, this often results in higher rent payments compared to standard renting. While this may be useful if you're saving for a down payment, it can also stretch your budget in the short term.

3. Price Lock Risks: Overpaying if the Market Dips

Many Rent-to-Own contracts lock in a purchase price for the future. This can be a risk in a changing market. For example, if home prices drop during the term of your lease, you might end up overpaying for the property.

On the other hand, if prices rise, the price lock could benefit you. So, while it provides some certainty, it can also be a gamble depending on how the market performs during the term of your lease.

Know Alternative Options to Build Credit for a Mortgage

If Rent-to-Own doesn’t sound like the best option for building credit, there are other ways to improve your credit score and get ready for a mortgage.

1. Secured Credit Cards

One popular method is to use a secured credit card. With this type of card, you deposit a certain amount of money with the lender, and your credit limit is usually equal to that deposit. By using the card responsibly and making timely payments, you can build your credit over time.

2. Timely Bill Payments

Another simple way to build your credit is by making timely payments on all your bills. Whether it’s your phone bill, car insurance, or utilities, paying bills on time can boost your credit score.

3. Consider Co-Signing 

If possible, a family member with good credit can co-sign a loan, helping you qualify for a mortgage.

Explore the current Ontario mortgage rates to find the best options for your home loan. Stay informed on the latest trends to secure favorable rates and save on mortgage payments.

Conclusion: Rent-to-Own Credit Building in Canada

So, does Rent-to-Own help build credit in Canada? The answer is a bit mixed. If your landlord reports payments and you pay on time, it can help. 

However, it comes with risks like higher costs and no certainty that banks will recognize it as mortgage preparation.

Wondering about parents helping with down payments? Learn the 2025 tax implications you must know. Understand potential gifts, tax rules, and how they can impact your home purchase and finances."