Canadian mortgage rules are like the weather in Alberta; they change daily. However, one change that came out of 2024 that we can get behind is the ability for insured mortgage holders to refinance up to 90% of their home to put in a secondary suite.
Building a secondary suite, whether it’s a basement apartment, a backyard carriage house, or a cozy in-law suite, can boost your property’s value and generate rental income. If you’ve been thinking about creating a rental space, this might be the opportunity you’ve been waiting for.
However, there’s a specific process (and a few caveats) you’ll need to follow. Here’s what you need to know:
The Basics for Refinancing a Secondary Suite
Before diving into the process, here are the key points about this new refinancing option:
Who qualifies? This option is only available to homeowners with an insured mortgage (a mortgage with less than 20% down and backed by mortgage default insurance, such as CMHC).
How much can you refinance? You can borrow up to 90% of the improved property value. The improved value is the appraised value of your home after the secondary suite is completed.
Property value cap: The property value must not exceed $2 million.
Extended mortgage term: You may qualify for a 30-year amortization, which could lower your monthly payments.
Intended use: Funds must be used specifically to build a legal secondary suite on your property. It cannot be used for short-term rentals like an AirBNB.
Confirm Local Regulations
Before jumping into the refinancing process, it’s critical to make sure your secondary suite is even allowed. Local regulations will dictate what you can and can’t build.
Zoning laws: Check if your property is zoned for secondary suites. Not all areas permit these additions.
Permits and approvals: You’ll need building permits and must comply with local bylaws regarding square footage, parking, and separate entrances.
Is It Worth It?
While refinancing up to 90% of your property’s improved value sounds appealing, it’s not for everyone. You have to ask yourself:
Can I afford higher payments? Borrowing more against your home increases your monthly mortgage payments. If you are planning on renting your secondary suite, some of this income may be able to offset the higher mortgage payments.
Is it the right time? If you are just starting your mortgage term, it might pay to wait. If you have a fixed-rate mortgage, your penalty for breaking your mortgage could cost more than the renovations.
Do I have the time and resources to be a landlord? Renting out a suite comes with responsibilities like tenant screening, maintenance, and managing rental agreements. Being a landlord is not for everyone
Will the investment pay off? Consider whether the rental income and increased property value will outweigh the costs of construction, higher mortgage payments, higher premiums, and landlord duties. Don’t get us going on if you’re ready to have your in-laws or parents live with you…
Work With a Mortgage Broker
This process is not for the faint of heart, and that’s why working with a mortgage broker (like us!) who understands this process is going to save you major headaches. We’ll help you:
Weigh the pros and cons: They’ll help you assess whether refinancing is the best financial move for you.
Determine your eligibility: We will review your situation and see if you meet the criteria for this refinancing option.
Crunch the numbers: We’ll calculate how a new mortgage amount, interest rate, and amortization period will impact your payments.
Guide you through the application: From gathering documents to submitting your application, we’re here to make the process smoother.
Access to pros: As brokers, we also have access to professionals, such as appraisers, who can evaluate current market conditions for rent to help with financing.
There Is Another Option
If you’re planning a smaller renovation, there is another option under the Secondary Suite Loan Program (SSLP) that might make more financial sense than refinancing.
As of December 10, the Government of Canada is offering a 15-year loan of up to $80,000 at a low interest rate of 2% for eligible applicants to build or renovate secondary suites like basement apartments.
Again, working with a broker is going to be the key here to understanding what makes the most financial sense for you.
The Bottom Line
This new refinancing rule could open doors for homeowners who are interested in building a secondary suite, but it’s not a one-size-fits-all solution. We don’t need to say it, but we will…talk with a mortgage broker first.
We’ll help you navigate the fine print, run the scenarios, and decide if this option makes sense for your financial goals.
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