Canada's New Secondary Suite Loan: What It Means for Homeowners

In this article I want to fully walk through a new rule that has been passed in Canada, one that helps you get a good loan so you can build a second suite inside the home you already live in. This news has come up a lot since it was announced. A lot of my clients have asked me about it, and I keep seeing it discussed on social media, so I figured it was worth covering properly.

I'm Moe Asgarian, Principal Real Estate Broker in Toronto, ranked #47 worldwide at RE/MAX. Here I'll explain the new rule that takes effect in January 2025 and helps people build a second suite in their home. Thanks for subscribing to the Team Asgarian channel and leaving me comments.

What the program actually is

Canada's Deputy Prime Minister announced that starting January 15, 2025, Canadians will be able to refinance an insured mortgage and access up to 90% of their home's value to build secondary suites. A similar program existed until 2016 and was stopped back then. Now they are bringing something like it back.

In those years the housing market was very hot, and the government decided to stop those loans to cool things down. Now they have decided to start it up again. The goal is this: home prices in the big cities are so high that they want to find a way to keep the market moving, get more units built, and put them to use.

Who the government is trying to help

The idea behind giving out this loan is to get more homes built, especially for the new generation that is struggling to buy a home right now, so they can have a better shot. There is another group they are paying attention to as well: seniors. They say this loan can help them too, by giving them a good source of income.

The conditions of the loan

This loan gives you up to 90% of the home's value after the renovation is done. The condition is that the total home value has to be under $2 million. The repayment period is 30 years, which keeps the payments lower. Homeowners can add up to 4 new units to their property with this loan.

But here is the catch. Every secondary suite you build has to be a completely independent unit. That means its own dedicated entrance, a separate kitchen, and a separate bathroom. The units have to be built fully according to city codes and rules. One more condition they have set: you cannot use these units for short term rentals. Pay attention to this. If you take this loan and then try to put the units on Airbnb, that is legally prohibited. You have to offer long term rentals, with a lease of at least one year.

The stress test is going away for lender switches

There is another point I think is really important to mention, and we will probably hear new details about it soon. The government is going to remove the stress test in certain situations. For what situations? When your mortgage is at or above 20%. They are going to announce a rule that says if someone wants to change their lender, meaning they are refinancing and looking for a new lender, or doing their renewal with a new lender, they no longer have to pass the stress test.

Until now it worked like this: you had to be able to repay at about 2% above the rate you were actually paying. They called this the stress test. For example, if the rate was 5%, the lender would check whether you could handle 7%. If you couldn't, they wouldn't give you the loan. Before, if you renewed with the same bank you got your mortgage from, they couldn't ask you for any qualification. But if you went to any other bank, the stress test applied to you. Now they are saying if you go to a new bank, they only qualify you based on the rate you are actually taking, with no stress test.

Why this matters for owners

Say you got your loan from CIBC and you see you can get better terms at TD. If you want to change your lender, they won't review you at 2% above the rate you want anymore. As long as they see you can manage the rate you are actually getting, they give you the loan. That lets you shop around for a new lender with a lot more peace of mind.

I think these two things, the loan for building new units or secondary suites and the removal of the stress test for switching lenders, can help a lot of people and homeowners. The details are still coming, and I'll talk with you again once more is announced. If you want to follow news about the Canadian housing market, follow the Team Asgarian channel and hit that bell so you stay on top of new updates. Stay well and take care.