Its not sustainable................lol.Whta is sustainable is Selling Option Premium. 

- Since I am paying interest on the existing mortgage, do I need to charge a premium for the house in order to make this deal work?

Some times on residential mortgages we have to go to alternative lenders to make the debt servicing numbers to work and if you want them in a corporation it usually comes with a premium in rate. 

This puts a premium on making deals and expansion. 

Anything non-owner occupied is going to come at a premium.

I have it listed for 845/month which is a medium/medium-high amount for the area, if I agree to this what would you say would be a fair mark up premium for such an agreement considering I'd be giving my listing agent 1/2 month rent and the wear and tear on brand new carpet/flooring/paint?  

When it comes time to sell, even if the sqft is not correct on BCAD, you can have it manually edited in the SABOR MLS.

It is already covering holding costs with the top unit rented, so will be a pretty strong deal once I get the bottom rented out.This is a great strategy to get the same results as a duplex or triplex without paying the premium for one, and all it takes is a bit of creativity, and usually only light renovations (adding the kitchen in the basement is usually the major part). 

If you don't have it rented, charge them a premium for the shorter term. 

Assuming average returns, I'd have enough to repay the loan and pay second-year premiums with the cash value increase.Third year, I would use a loan against the policy and the dividend to pay the premium on a one-year repayment plan.