On Tuesday, the Government of Canada announced a new insured mortgage refinancing product that is causing some in the real estate industry to scratch their heads.
The product, to be made available on January 15, 2025, will allow eligible homeowners seeking to build a secondary suite to access up to 90% of their property’s value, including the value added by the secondary suite. Eligible homeowners will be able to amortize their refinanced mortgages for up to 30 years, with the maximum property value limit currently set at $2 million.
One of the main eligibility requirements is that the borrower themselves or a “close relative” must be occupying one of the home's current units.
“The idea here is to make it easier for people to build a secondary suite in your home, for someone to build a basement flat, a garden flat, laneway housing,” Deputy Prime Minister and Minister of Finance Chrystia Freeland said at a press conference. “This is all about gentle density — creating more homes for Canadians to live in. It builds on the Secondary Suite Loan Program, which was announced in the Budget.”
But some, including Toronto mortgage broker and commentator Ron Butler, are raising red flags over the announcement's more wishy-washy details.
One issue Butler has is the potential this program poses for people to abuse the system. "Say somebody builds a laneway home or they build a basement suite, they get the 90% refinance, and they just go from place to place, taking advantage of this program," he tells STOREYS. "Once you sign an affidavit saying you’re living in the home that you built the addition in and secure the [Canada Mortgage and Housing Corporation] refinancing, if you move out a week later, CMHC has no recourse whatsoever."
Butler points out that the purpose of CMHC is to help people buy homes, not create landlords. "Who does this help to buy a home?" he asks. "The answer is there’s no way to explain how it helps. In fact, it supports turning people who may be living in a single-family home on their own to become an amateur landlord."
Additionally, in Toronto, where housing affordability is particularly strained, Butler sees social and bureaucratic forces rendering the program potentially ineffective. "It’s all been cloaked in the story of density," he says. "But no matter what the government tries to do, it’s hard for us to get more density because the City's permitting department fights back, and neighbours fight back, and NIMBYism fights anybody’s attempt to build density, even if it’s just building a laneway home."
He's not wrong that NIMBYism in Toronto has a record for stunting the gentle density movement. Just last month, community pushback led to garden suite permissions potentially being revoked for homes on a portion of Parkmount Road in East York.
Some have also flagged the potential for people to unintentionally end up with a larger loan-to-value than they bargained for, in the case that the renovation doesn't increase the home's value as much as one thought or one's home value decreases. In which case, even if you sell your home, it wouldn’t be enough to pay back the loan, which Butler says could potentially be "a massive amount of money."
Butler also says we simply don't have enough information on the product yet.
"We don’t know if you have to complete the renovations and then you can get the 90%, we don't know if the government will advance you money to do construction work," he says. "In the traditional world of refinance, you build first, you prove to CMHC that you have a legally approved laneway or suite, and then you can refinance 90% of the newly appraised value. That’s the most likely way it will work."
Still, with up to 30-year amortizations on potentially 90% of $2 million, those who refinance through the program could be saddled with hefty debts for decades.
But to Butler, the announcement is more political than effectual. "[Chrystia Freeland's staff] are very smart people, but they're also the political support, and this is political," he says. "Have you ever heard of anyone crying out a need for this? No. They want to present new policies that don’t directly cost taxpayers [...] so the government has a good defence: that it’s not spending any money of its own. Now, is it encouraging more borrowing? Absolutely. There’s no spending here, but there is government-backed debt increased."
