In Canada – and elsewhere in the developed world – housing prices are spiking beyond what the next generation can afford. Within Canada, the federal government has decided to help property owners use open space creatively to make more places to live – from empty office buildings to empty lots to empty basements. The process of adding secondary suites to existing residences, making it easier to access vacant land and other federal properties for residential use.
Beginning January 15, 2025, lenders and insurers will be authorised to offer mortgage refinancing for homeowners who want to add secondary suites within their homes. Along with the Canada Secondary Suite Loan Program, this change will pave the way for homeowners to convert garages into laneway homes and basements into rental units. The income from these secondary suites can assist homeowners with their own mortgage payments. In cases where a retired couple might want to open up space in their home to make a second dwelling for their children, or other relatives, that could also help families live closer together. The changes in the rules will do the following:
- Boost the mortgage insurance home price limit to $2 million for people refinancing for the purpose of building secondary suites. This will open up the new financing to homeowners in all markets in Canada.
- Permit refinancing of insured mortgages to add secondary suites so that homeowners can leverage the equity.
These financial reforms come on the heels of recent changes within municipal zoning throughout Canada’s major cities to open up new opportunities to add to the residential supply. New suites for rental would open up living spaces for more Canadians and could also provide a revenue stream for seniors who want to continue living at home.
In order to be eligible for these reforms, borrowers who want to access mortgage insurance to add secondary suites in Canada must fulfill the following:
- Occupy one of the units (or lease it to a close relative;
- Own the property/properties already;
- Intend to add more units
- Use the additional unit(s) as a long-term rental.
Other rules and guidelines for the process include the following:
- Insured refinancing is only allowed for construction of additional units.
- The new units have to be fully self-contained units, such as laneway dwellings and basement suites that have private entrances. They also have to meet city zoning requirements.
- The $2 million cap applies to the “as improved” value of the residential property that serves as security for the loan.
- The maximum loan-to-value (LTV) ratio for the loan is 90 per cent of the value of the property, including the value that the secondary suite(s) contribute to the value. Any other loans that the property secures are included in that 90 per cent. Also, additional financing may not exceed the costs of the project.
- All other criteria for mortgage insurance backed by the government remain in place.
A proposal that is still in the planning stages involves taxing vacant land. The federal government is gaining feedback from cities, territories and provinces interested in taxing vacant land for the purpose of incentivizing landowners to improve their properties and build homes on their land, thus unlocking the possibilities of their assets.
The Canadian government identified 14 more federal properties as underused and suitable for new home construction. This now makes 70 federal properties in total in the Canada Public Land Bank. This is part of the government’s goal of turning underused and unused federal properties into 250,000 new dwellings. In total, the federal government has planned to add a total of 4 million homes to the nation’s residential supply using all of its legislative and administrative powers, and this starts with turning available space and land into residences.
In the meantime, these mortgage reforms are just adding to changes to government policies to make it easier for the newest generation of Canadian adults to own homes. Beginning December 15, 2024, the following reforms will go into action:
- Raise the insured mortgage price cap from $1 million to $1.5 million to bring policy in line with real estate market realities so that mortgages with down payments below 20 per cent will be available to more Canadians. This cap had not been increased since 2012.
- Growing 30-year mortgage amortization eligibility to all purchasers of new construction and all first-time homeowners to cut monthly mortgage payments and make home ownership more affordable across the board. Giving Canadians more access to new construction – including condominiums – is another way to incentivize new residential construction. This adds to the Budget 2024 commitment which began on August 1, 2024, allowing 30-year mortgage amortization for first-time homeowners buying new construction.
To learn more about how you can take advantage of these new reforms, reach out to one of our refinancing consultants at Amansad Financial today. We have helped many clients reach their financial goals through mortgage refinancing in the past and stand ready to help you leverage these new reforms.