In 2024, the Federal Government announced the 2024 Fall Economic Statement will double the loan limit for the Canada Secondary Suite Loan Program from $40,000 to $80,000. The new program will launch in early 2025. This new secondary suite loan program will make it easier for homeowners to build secondary suites on their property, including basement, laneway homes and garage suites.
What is the purpose of the Canada Secondary Suite Loan Program?
Building more homes is part of the government’s strategy to provide more housing options and fight the housing crisis. Adding more and diversifying housing options will help people find reasonable housing in existing neighbourhoods. It will help build community, use existing urban infrastructure and provide a rental revenue stream to help homeowners manage expenses.
This program aims to provide more affordable housing options, especially in communities where rental units are in high demand. By reducing demand, the goal is also to reduce soaring rental and real estate costs. Building secondary suites allows more people to live in preferred neighbourhoods, using existing infrastructure and reducing urban sprawl.
“Our government already has the most ambitious housing plan in Canadian history—a plan to build 4 million homes. In the forthcoming Fall Economic Statement, alongside doing more to build the homes Canadians need faster, we’re making further investments to put more money in Canadians’ pockets, grow the economy, and create more good-paying jobs. And we are doing this in a way that maintains Canada’s G7 leadership in fiscal responsibility.”
– The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, as quoted in the government release.
Key Takeaways of the Canada Secondary Suite Program:
Larger loan amount: The offered loan amount for homeowners building secondary suites on their properties has doubled from $40,000 to $80,000.
Lower interest: The program now offers 15-year loan terms at an interest rate of just 2% for eligible applications.
Mortgage refinancing options: In addition to the Secondary Suite program, homeowners can refinance with insured mortgages to help cover the cost of building a secondary suite. In early 2025, insurers and lenders will start allowing mortgage refinancing of up to 90% of the post-renovation value of their home up to $2 million, amortized over a 30-year period.
The government will release eligibility details, including how to apply for this program, in the first months of 2025. Read more in the 2024 Fall Economic Statement: Making it easier for homeowners to build secondary suites.
An example of how Canadians can use the Canada Secondary Suite Program
When buying a new home.
Ethan and Jasmine are young, hardworking professionals who want to purchase their first home. With high real estate prices, they know that they might need supplemental income to help pay for the mortgage and other living expenses. They found a single-family home in their home city with a double detached garage at the back of the property. Converting the garage into a laneway home can provide them with rental revenue to help pay down the mortgage.
Jasmine and Ethan have an option to finance their laneway home construction project. They can apply to the Canada Secondary Suite Loan program and receive a low-interest loan of $80,000 to help fund the build. Once they have the suite rented out, they can use some or all of that rental income to cover the cost of the loan.
When building a suite on an existing property.
Perhaps the couple already owns a home and has equity in it. They might need assistance paying for expenses or are looking for an investment opportunity.
They can take advantage of the changes in mortgage insurance rules to refinance their insured mortgage. Doing so will give them access to home equity (up to $2 million of the homes post-renovation value), which can be used to convert the garage or other parts of their home into a legal secondary suite. Then, they can collect rental income to offset mortgage payments, property taxes, and other living expenses.
Cons of the Canada Secondary Suite Loan program
While this program has many obvious benefits, experts in the field have a few warnings for eager homeowners. For example, $80,000 seems like a lot of money, but it likely won’t be enough to cover a large-scale build like a detached laneway home or garage suite. Homeowners should also consider other high costs of building a suite, like legal fees, permitting, etc. Experts warn that homeowners must have a strong financial foundation, like at least 20-35% equity in their home or other funding sources, to responsibly take advantage of this program without too much risk.
And, just because you CAN borrow that much money or refinance your mortgage doesn’t mean you should. For example, if you refinance your mortgage at $1.8 million at a 4.5% interest rate – that means your mortgage payments will be $9,075. Plus, you’ll have to pay a large CMHC insurance premium (3.3%), which can significantly burden your financial situation. To help cover that cost, you’ll have to increase the rent on your secondary suite, which defeats the purpose of creating more affordable housing.
Some believe this can help provide varied and more reasonably priced housing in high-demand areas, but it is not a solution to Canada’s housing crisis. To address the crisis, they believe more large-scale investments in new construction and broader policies on housing affordability are required. However, creating more rental units can help some areas on a smaller scale.
There are financial risks, and homeowners should always seek the advice of professionals before making this decision. You can read more about the risks and considerations of this program in this article: https://www.canadianmortgagetrends.com/2024/10/pros-and-cons-of-the-new-federal-secondary-suite-programs/
Canada Secondary Suite Program FAQs.
Here are some frequently asked questions about this program.
What is a secondary suite in Canada?
A legal secondary suite in Canada is defined as a separate dwelling on an existing property that is fully self-contained. That means it must have a sleeping space, kitchen and bathroom within the suite. In addition, it must adhere to local building codes, permits and zoning regulations.
What is the purpose of the program?
The purpose of the program is to create more affordable housing options. The hope is to meet the demand for more diverse housing options, help aid the current housing problem and provide more options in areas where rental units are in high demand throughout Canada.
When does the program start?
The government has not released an official start date. It will be announced in the coming months.
Am I eligible for the Canada Secondary Suite Program?
Eligibility details have not been published yet. However, the program targets homeowners with the space to build long-term rental suites on their properties. It includes renovating existing suites to make them legal secondary suites, renovating part of the home to create a secondary dwelling, or constructing new units like a garage or garden suite, or laneway home.
How much money can I borrow through this program?
The government has doubled the loan amount to $80,000. It is available on a 15-year term at an interest rate of 2%.
Can I refinance my mortgage to pay for constructing a secondary suite?
New details announced in late 2024 state that homeowners with insured mortgages can refinance their mortgages and leverage their existing home equity to help pay for secondary suites on their property. In early 2025, insurers and lenders will start allowing mortgage refinancing of up to 90% of the post-renovation value of their home up to $2 million, amortized over a 30-year period.
What about zoning and bylaws?
Homeowners should check with their local zoning and bylaws regarding garden suites, garage suites and laneway homes. Not every property is suitable or eligible to build a detached secondary dwelling on.
What are the benefits of secondary suites in Canada?
The demand for affordable housing is growing, and secondary suites are becoming increasingly popular across Canada. These self-contained living spaces, often built inside basements or part of a detached garage on the property, offer a range of benefits.
Addition income
One of the most appealing benefits of adding a secondary suite to your property is the opportunity for extra income. Renting out a basement suite or a separate unit can help offset your mortgage payments or provide a steady cash flow. In high-demand areas, secondary suites are particularly sought after by renters looking for affordable housing options. This income can ease financial pressures, especially for homeowners who need help covering their living costs.
Diversified and affordable housing options
Canada is currently facing a housing crisis, and secondary suites help address the growing demand for affordable housing in our cities. We need more rental units at affordable prices, especially in heavily populated and high-demand areas like Toronto and Vancouver.
Homeowners can contribute to the solution by building a secondary suite while reaping financial and lifestyle benefits. These units offer an affordable alternative to traditional apartments, providing individuals or families a place to live without breaking the bank. Plus, they’re often in established neighbourhoods, near schools and amenities, making them more desirable for renters.
More options and flexibility for homeowners
You don’t always have to rent out your secondary suite. Some homeowners use them to age-in-place or to house multi-generational families. Whether you need space for aging parents, adult children, or guests, having a separate living area provides a comfortable solution. With a suite, you can maintain privacy while having loved ones nearby.
Increase property value
Adding a secondary suite can significantly increase your property’s value. Many potential buyers and savvy real estate investors see a secondary suite as a major bonus, especially if they plan to rent it out or need the space to house family members. A well-designed suite can make your property more attractive to a broader range of buyers and increase its market appeal, potentially resulting in a higher sale price.
Boosted energy efficiency
Secondary suites are an efficient way to create more housing with a lower environmental impact. Many homeowners convert existing space, like basements or garages, into secondary suites. This means less construction and fewer resources are used than building a completely separate structure.
Additionally, tenants in secondary suites often share utilities, which can help reduce overall energy consumption. Homeowners can even incorporate sustainable features, such as energy-efficient appliances, upgraded insulation and other green upgrades.
Strengthen communities
By building secondary suites, homeowners contribute to and strengthen their local communities. These suites offer affordable rental options in established neighbourhoods, making it easier for newcomers or people with lower incomes to settle in. This helps revitalize communities and support local businesses by increasing foot traffic and demand for local services.
Building sustainable cities
Urbanization and sprawl are becoming problems in Canada, and secondary suites offer a sustainable solution. They use existing land and infrastructure, reducing the need to build new housing developments in rural or undeveloped areas. This helps preserve natural spaces and minimizes urban sprawl, which can strain resources and the environment. In addition, people living in these areas use existing infrastructure, which is more efficient and sustainable than building additional infrastructure further away from city centres.
Hiring a contractor to build your secondary suite
If you’re interested in building a basement suite, laneway home, garden or garage suite on your property, you’ll need the help of an experienced builder. The right renovation company or secondary suite builder can help with your suite’s planning, design and construction. In addition, they understand local and recent building codes, permitting and zoning regulations, ensuring your project is compliant from start to finish.
When looking for a contractor for your secondary suite construction, consider the following tips:
Always do your research.
This is a significant project and investment. You want to ensure you’re hiring the right company for the job. Dig deep into the available companies in your area, visit their websites, and look for vital credentials, good online reviews and examples of their work. Find out how long they’ve been in business, and look for industry affiliations like with the local homebuilders association or Better Business Bureau.
Check for critical credentials.
Never hire a contractor that cannot provide proof of provincial business licensing, liability insurance, and Worker’s Compensation Coverage. In addition, they should hire tradespeople who are also licensed, insured, bonded, and certified in their trade. If a company cannot provide these things for you, walk away.
Get multiple estimates.
Get at least three estimates from different companies for your project. This will give you a better understanding of what is involved in the project and allow you to meet a few contractors. Remember that the cheapest estimate is not always the best one. It could mean the contractor has less experience, isn’t being transparent in quoting or not using certified, experienced trades. Choose an estimate that is competitive and fair.
Get a contract in writing.
Never accept a verbal contract. Every detail of your build should be included in a written contract, including scope of work, timelines and cost details for every aspect of the project. Consider things like the cost of labour, materials, permits, and inspection and ensure a 15% contingency budget for unforeseen costs.
Trust your gut.
If you’re getting bad vibes from a contractor, that’s usually a red flag. You want your contractor to be a clear communicator, experienced, knowledgeable, and easy to work with. Just like any relationship, it has to be a good fit.
Check for RenovationFind Certification
RenovationFind Certified secondary suite builders have cleared our rigorous background checks. We hire a third-party organization to run thorough legal and financial background checks. To be certified, we require proof of liability insurance, worker coverage and business licensing. In addition, companies that are affiliated with the Better Business Bureau receive a higher rating on our website. Then, we monitor the companies to ensure that they maintain our high standards for work, service and business ethics.
This post first appeared on https://blog.renovationfind.com