The federal government has announced a new mortgage program geared to assist homeowners in adding space to their existing homes to create additional self-contained living spaces, such as basement apartments, in-law suites or converted garages.
Currently, any refinance, no matter the purpose, is maxed out at 80% loan to value ratio (LTV). That means you must have a substantial amount of equity (greater than 20%) in the home to qualify for a large enough mortgage to complete a large renovation of this nature.
For example, a home valued at $1 million cannot currently be refinanced with a mortgage value above $800,000. If you are refinancing to fund your renovation, you would only qualify for an amount between the current mortage value and 80% of the home value. So, if your current mortgage is $750,000, then you can only obtain an additional $50,000 for such a renovation.
What is Changing?
Effective January 15, 2025, an insured mortgage refinancing option is being introduced which will allow mortgages up to 90% LTV. This will have the effect of freeing up more equity in existing homes to enable the creation of much-needed living space in the housing market. As a result, by creating a rental unit homeowners will also create an additional source of income to help with rising carrying costs and the overall increase in the cost of living.
Under these new guidelines, in our previous example, you could now obtain an additional $100,000 (up to $150,000 total) for renovations when adding a rental unit.
As the government stated, “New rental suites would provide more homes for Canadians and could provide an important source of income for seniors continuing to age at home.”
Some Program Details (the fine print):
Eligibility: Homeowners must already own their home and either live in one of the existing units, or have a close relative living there and have plans to add new a new self-contained living unit, or units.
Refinancing: Homeowners will have access to insured mortgage financing to pay off their existing mortgage and fund the creation of new living space.
Living space requirements: The planned new units must be self-contained, such as basement suites or laneway homes. They must also comply with all local zoning and building codes. The purpose of the program is to increase long-term rental opportunities so short-term rentals, such as Airbnb, are not allowed.
Number of units: Homeowners are allowed to have up to a total of four units on one property, including their existing home.
Property value: The maximum value of the property after the improvements are completed must be under $2 million to qualify.
Loan-to-value (LTV): Homeowners can refinance up to 90% of their property’s value, including the existing mortgage and the new units. This was previously 80%.
Amortization: Up to 30 years. This is an increase of the previous maximum amortization of 25 years on insured mortgages.
Project costs: The total amount of the approved mortgage cannot exceed the total amount of the existing mortgage and the total cost of the unit construction.
This program could be a good option if you’re considering adding a rental unit or creating additional space for your family. You can read the full announcement here. Even if you are not ready to renovate, you may also want to explore another change to CMHC eligibility for first-time buyers that may apply to you!
To explore whether this program makes sense for you, feel free to reach out to your Grimsby Mortgage Broker for more information.