Expanding Housing Options with New Mortgage Rules

The federal government has introduced a mortgage rule change designed to increase access to home equity funds, making it easier for homeowners to finance the addition of secondary suites. These refinances, previously unavailable since 2016, are back and aim to help Canadians cover the costs of building an additional living unit, such as a basement suite or laneway home, on their property.

Easing the Housing Crunch — One Suite at a Time

Starting January 15, 2025, eligible homeowners will be able to access an insured refinance for up to 90% of their improved property value, with a cap of $2 million. This provides a valuable opportunity for homeowners to finance the construction of rental units, helping to ease housing shortages while generating potential rental income.

Here’s what you need to know about this exciting opportunity.

Key Details of the Insured Refinance Program

According to the federal government, here are the essential details for accessing an insured refinance:

• Homeownership Requirement: The borrower must already own the home and either occupy one of the units or have a close relative occupying one.
• Increased Borrowing Limit: Homeowners can borrow up to 90% of the “as improved” home or property value (an appraisal will be required).
• Property Value Cap: The maximum property value for eligibility is $2M.
• Amortization Extension: Available for up to 30-year amortizations, extending mortgage repayment terms.
• Construction Funding: The funds must be used to construct a secondary suite, with a limit of four units on the property.
• Municipal Zoning Compliance: Each suite must meet municipal zoning requirements and be fully self-contained with its own entrance, kitchen, and bathroom.
• Long-Term Rentals: The additional unit must be used for long-term rental purposes, not for short-term stays like Airbnb.

Still Waiting on Some Details

While the government has outlined the basics, some details are still forthcoming, such as:

• Insurance premiums for homes valued up to $2M (current changes up to $1.5M take effect on December 15, 2024).
• Processes for determining eligible construction costs.
• Whether funds will be released based on construction milestones or upon project completion.
• It’s worth noting that extending an insured mortgage to a 30-year amortization adds a 0.2% insurance premium, a small cost for many homeowners looking for greater flexibility in their mortgage terms.

The Return of Insured Refinances

Insured refinancing was previously discontinued to discourage homeowners from taking on additional mortgage debt. With the reintroduction of this option, homeowners can now borrow more funds against their home equity and access lower ‘insured’ mortgage rates, offering significant benefits compared to typical refinances, which come with higher interest rates and only allow for access to 80% of the property’s value.

The Benefits of Using Insured Refinancing to Build a Secondary Suite

• Lower Interest Rates: Insured mortgage rates are typically lower than HELOCs or unsecured lines of credit.
• Increased Borrowing Power: Insured refinancing allows you to borrow more than conventional refinances, which cap at 80% LTV.
• Add a Future Income Source: Building a rental unit can create a new stream of income for homeowners, helping to offset mortgage costs.
• Increase Your Home’s Value: A well-constructed secondary suite can raise the value of your home, offering long-term financial benefits.

Potential Drawbacks

As with any mortgage decision, there are some risks to consider:

• Increased Debt: Borrowing against your home can increase your mortgage debt, and extending to a 30-year amortization will increase the interest you pay.
• Landlord Responsibilities: Managing a rental unit can be stressful, particularly if tenant issues arise.
• Construction Costs: There is always a risk that the cost of construction may exceed the amount borrowed.

Laneway Homes as Secondary Suites

Laneway homes, which are detached units typically built in the backyard of a property, are becoming a popular option in urban areas. These suites are classified as secondary units, but as with any major construction project, zoning regulations, permits, and potential impacts on property value must be considered.

Tying in with the Secondary Suite Loan Program

In addition to the insured refinance option, the government has also announced plans for a Secondary Suite Loan Program, which will provide homeowners with access to up to $40,000 in low-interest loans for building secondary suites. This program is expected to launch in 2025-26, offering further financial support for those looking to add rental units to their homes.

Ready to Explore Your Options?

At Canadian Mortgage Professionals, we’re here to help you navigate the changing mortgage landscape. Whether you’re looking to build a secondary suite or explore other mortgage solutions, our expert brokers can provide personalized advice to help you make the best financial decisions.

If you’re considering an insured refinance or have any other mortgage-related questions, contact our team today to get started on your next step toward home improvement and increased financial security.

Stay informed on the latest mortgage rule changes and opportunities by subscribing to our newsletter or speaking with one of our experienced mortgage associates!