New rule allows larger refinancing for secondary suite creation

Mortgage rule changes seem to be coming at us fast and furious. This isn’t surprising given that we are in an election year.

Several weeks ago, I wrote about the change to the ceiling for the purchase price of insured homes and the extended amortization that will be available. On Oct. 8, the government announced a new program that will come into effect Jan. 15, 2025. It will enable clients who already own their homes to refinance up to 90% of the value of the home to use the available equity to create a secondary suite.

Current rules only allow refinances up to 80% of the value of the home, regardless of the purpose of the refinance.

The parameters of this new program, taken directly from the CMHC website (Mortgage Insurance Rule Changes to Enable Homeowners to Add Secondary Suites - Canada.ca) are as follows:

• This measure will apply to all borrowers seeking to access mortgage insurance in Canada to add more units (secondary suites). Borrowers must satisfy the following requirements:

• Already own their properties

• The borrower or a close relative are occupying one of the current units

• Intend to construct additional units

• The additional unit(s) must not be used as a short-term rental.

• Refinancing—Insured refinancing will be allowed for the purpose of building additional unit(s).

• Legal units—The new units must be fully self-contained units (e.g., basement suites with separate entrances, laneway homes) and meet municipal zoning requirements.

• Number of units—Maximum of four dwelling units including the existing unit.

• Maximum property value limit—The “as improved” value of the eligible residential property against which the loan is secured must be less than $2 million.

• Maximum loan-to-value limit—Up to 90% of the property value, including the value added by the secondary suite(s), in combination with any other outstanding loans secured by the property.

• Maximum amortization—30 years.

• Additional financing must not exceed the project costs.

We are still waiting on clarification from lenders as to their specific guidelines around this program, so I will provide more information as it becomes available.

With respect to what this means in dollars and cents, using a home valued at $800,000, we will now be able to refinance up to $720,000 for the purpose of adding an additional legal suite. Under previous guidelines we would only be able to refinance up to $640,000, so in this example clients will be able to access $80,000 more of the equity in their home. It will be interesting to see what the uptake is for this program.

One particular group of clients I see this benefitting is clients who have only been in their home a few years and who have seen a moderate growth in their equity after they put down the minimum down payment when they purchased their home.

With carrying a higher mortgage and the increased cost of living overall, those clients may really benefit from access to funds to add a secondary suite to their home.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.