Adding a secondary suite: your financing is decided before the first hammer swing

Zoé bought her bungalow two years ago. Her basement barely gets used, and she would like to turn it into a rental unit to ease her mortgage payments. She already has a contractor’s quote: $110,000.

Her first instinct was to ask her bank for a refinance. The answer cooled her down: based on her home’s current value, she has almost no equity available. End of the project? Not necessarily. Since January 2025, a rule allows this type of project to be financed based on the property’s value after the work is done.

A conventional refinance is capped at 80% of the property’s current value. In Zoé’s case, her home is worth $600,000 and her mortgage balance is $470,000. At 80%, she could borrow up to $480,000, barely $10,000 more than she already owes. That is a long way from the $110,000 she needs.

Since January 15, 2025, mortgage insurers (CMHC, Sagen and Canada Guaranty) allow an insured refinance of up to 90% of the as-improved value, with an amortization of up to 30 years, to add one or more units to an existing property.

Current value: $600,000

Cost of the work: $110,000

Estimated as-improved value (per the appraiser): $700,000

Maximum financing at 90%: $630,000

Actual need: $470,000 (current balance) + $110,000 (work) = $580,000

The project becomes financeable. Two important details: the value used is the lower of the as-improved value and the current value plus the cost of the work. And the financing cannot exceed the actual cost of the project. In other words, this is not a way to take equity out for other needs.

As with any insured mortgage, an insurance premium is added to the loan. It increases with the loan-to-value ratio, and an amortization longer than 25 years carries a surcharge.

In Quebec, zoning rules for secondary suites vary from one municipality to another. Check with your municipality’s urban planning department before you even have plans drawn up.

Good news for Zoé: the projected rent from the new unit can be included in her qualification, as long as the appraiser confirms it matches market rent. Lenders usually count only part of it, based on their own calculation method. A project that seemed out of reach on salary alone can therefore become doable.

If the unit is meant for a parent who will live there rent-free, there is no rental income to add. The file then qualifies on your income alone, and the numbers need to be run that way from the start.

This is often where projects go off track. Financing is arranged before the work, not during it.

The program exists, but each lender decides whether to offer it and how it handles draws and inspections. This is exactly the kind of file where comparing several lenders makes a real difference. That is our job.

If the unit is for a relative aged 65 or older, or for an adult eligible for the disability tax credit, the federal Multigenerational Home Renovation Tax Credit can be worth up to $7,500. On the other hand, rent you collect is taxable income.

As mortgage brokers, we are neither accountants nor tax specialists. Confirm the details with the Canada Revenue Agency, Revenu Québec or a tax specialist before moving forward.

Zoé did not have to choose between her project and her financial peace of mind. What made the difference was validating the financing before the work started, not once the job was underway.

Thinking about adding a secondary suite? Let’s talk it through together. As you probably already know, our services are free.