Federal government to allow insured refinances for creation of secondary rental suites

Homeowners looking to build additional living spaces within their properties – and generate some additional income – received some good news this week.

On October 8th, the federal government announced it will allow existing homeowners to take out mortgage insurance while refinancing in order to fund the renovation of new secondary or rental suites.

This is a considerable change, as insured mortgage refinances haven’t been allowed in Canada as of 2016; currently, anyone refinancing their current loan must take out an uninsured, low-ratio mortgage.

The government says this new refinancing option, which will go into effect on January 15, 2025, is part of efforts announced in Budget 2024 to encourage the creation of housing supply and neighbourhood density, by making it more affordable for homeowners to take out the necessary renovations to create additional units.

Learn more about Canada housing affordability

In their statement, the federal government points out that while a number of recent municipal zoning reforms have been made in Canada’s major cities via the Housing Accelerator Fund, the cost to actually build new units remains prohibitive.

“Many homeowners have extra space they may want to convert into rental suites, such as an unused basement, or a garage that could be converted into a laneway home. Historically, the cost of renovating, combined with municipal red tape, has made this both difficult and expensive,” reads the government’s announcement.

Who is eligible for an insured mortgage refinance?

The new policy change will apply to all borrowers looking to refinance to an insured mortgage, with the intention of constructing up to a maximum of four units, including the original living space.

To be eligible, borrower must:

• Already own the property
• The existing property is either occupied by the borrower, or a close relative
• The new units cannot be used for as short-term rentals, such as Airbnbs
• The “as improved” value of the property – meaning its assessed value after the renovations are complete – must be less than $2 million
• The mortgage must be amortized at a maximum of 30 years
• The insured mortgage can have a maximum loan-to-value of 90%, including the value of the added secondary suites, and in combination with any other outstanding loans that are secured by the property.
• The secondary suites must satisfy “legal unit” criteria, meaning they must be fully-self contained with their own entrance (including basement suites and laneway homes), and meet all municipal zoning requirements.
• Additional financing cannot exceed the project costs to build the suites.

At present time, no information has been released on what the premiums will be for these insured refinances.

An effort to boost housing supply

This new refinancing option is designed to incentivize existing homeowners to add densification to neighbourhoods via infill housing – while it remains to be seen how popular it’ll be with borrowers, it’s a step in the right direction.

According to the Canada Mortgage and Housing Corporation (CMHC), Canada’s housing market faces a shortfall of 3.5 million units, on top of the supply that’s already being created. The majority – 60% of that gap is in Ontario and British Columbia, as supply creation has lagged demand over the past two decades. 

Check out our education centre to learn more about refinancing your mortgage in Canada.

Also read:

• Insured vs. uninsured mortgage: What’s the difference?
• Mortgage Default Insurance Calculator
• What is a purchase plus improvements mortgage?
• Government introduces 30 year amortizations for all first-time home buyers, insured mortgages up to $1.5 million