Earlier this month, the federal government unveiled the Secondary Suite Refinance Program, set to launch January 15, 2025, which will allow homeowners to refinance up to 90% of their property’s value (capped at $2 million) to add up to four rental units—such as basement apartments, in-law suites, or laneway homes.

Short-term rentals are excluded, as the program’s goal is to boost rental housing in high-demand areas and help homeowners offset mortgage costs. For an in-depth look at the program guidelines, see Canadian Mortgage Trends’ previous coverage here.

With 30-year amortizations on refinanced, insured mortgages, this program revives a discontinued 2016 initiative and targets today’s tight housing supply and affordability crisis. For homeowners ready to ease financial strain and add steady rental income, this might be a smart move in today’s market.

Federal loan program better for smaller renovations

That said, I find the Secondary Suite Loan Program (SSLP), introduced as part of the 2024 federal budget in April, much more appealing than the refinance option, particularly after the government’s December 10 announcement that it will double the original $40,000 loan amount to $80,000.

In addition, the program will now offer 15-year loan terms at a low-interest rate of just 2% for eligible applicants to build or renovate secondary suites like basement apartments.

It’s a great way to make additional rental income or accommodate multi-generational living without breaking the bank.

This new loan program is definitely a step toward increasing housing density, making better use of the available space in communities across the country. By allowing homeowners to add secondary suites, it helps address the housing shortage in a practical way—adding more rental units without the need for large-scale new developments. It’s a smart move to maximize what we already have, especially in areas where space is at a premium.

Secondary suite refinance program: Ideal for larger projects

If you’re thinking of building something bigger, like a coach house or laneway home, the $80,000 loan may not cover all of your costs. That’s where the Secondary Suite Refinance Program comes into play.

Both the CSSLP and the refinance program aim to create more living spaces and help alleviate the housing supply problem. But adding a secondary suite isn’t cheap. Between construction, legal fees, and ensuring everything meets municipal zoning and code requirements, it requires careful budgeting.

This program aligns well with the multi-generational living trend, offering families a way to create living spaces for parents or adult children. But let’s be clear: while it helps add rental options, it’s not a solution to the housing crisis. To truly address that, we need bigger investments in new construction and broader affordability policies.

I do like that additional financing must not exceed the renovation project costs, otherwise things might really get out of hand.

Also, in my view, if you’re looking to take on a project of that scale, you should have a strong financial foundation—meaning at least 20% equity in your home, though I’d even argue for 35%. Having only 10% equity on a $2-million property feels risky and, frankly, irresponsible.

Just because you can borrow that much doesn’t mean you should

Consider the $2-million refinance option: on paper, it sounds attractive. But financing $1.8 million at a 4.5% interest rate means monthly mortgage payments of $9,075. On top of that, you’d face a substantial CMHC insurance premium—potentially adding $66,600 (at 3.3%) to your loan. This brings your total mortgage to $1,866,600 on a $2-million property, leaving you with minimal equity and limited financial flexibility.

Now imagine having to sell that home later for $2 million. After paying a 5% commission and HST, you’re left with just $20,400. That’s not even enough to cover prepayment penalties or legal fees!

It’s a slippery slope. While these programs offer some solutions, they come with real financial risks if not handled carefully. I am more comfortable the lower the mortgage amount needed. Why announce a new $1.5-million ceiling on insured purchases, and then weeks later announce this refinance program up to $2 million?

The bottom line about the new secondary suite programs

My bottom line: I had argued that the CSSLP loan limit of $40,000 needed to be raised to at least $75,000. On December 10, the government did just that by doubling the program to a more reasonable $80,000.

And as for the secondary suite refinance program, I understand some in our community are quite bullish about how it could drive business once details are finalized and lenders and insurers are fully on board.

However, I personally don’t anticipate much demand at all. And I much prefer a cap of $1.5 million, rather than the current $2-million limit.

Note: This piece has been updated to reflect the federal government’s Dec. 10 announcement concerning its Secondary Suite Loan program.

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Last modified: December 10, 2024