Federal government launches mortgage refinancing program for the first time since 2016

The federal government is rolling out another set of mortgage rule changes aimed at addressing the housing shortage, this time focusing on supporting the construction of additional dwelling units.

Deputy Prime Minister Chrystia Freeland announced that starting January 15, 2025, Canadians will be able to access 90% of the value of their home by refinancing their mortgage with default insurance to build additional dwelling units.

The goal is to increase the supply of rental homes in high-demand areas while helping homeowners offset rising mortgage costs.

“We must use every tool we can to build more homes and make housing affordable for every generation of Canadians,” Freeland said in a statement.

Key details of the new refinance program:

– Maximum loan-to-value (LTV): 90% of the “improved” value of the property (including completed construction), with the total property value capped at $2 million.

– Amortization period: The maximum amortization period for this refinance is 30 years, allowing borrowers to reduce monthly payments by spreading payments over a longer period.

– Number of units: Homeowners can add up to four self-contained units to their property, including their existing home.

– Self-contained units: Each additional apartment/unit must be a completely self-contained unit, meaning it must have separate living spaces such as a separate entrance, kitchen, and bathroom. This ensures compliance with municipal zoning requirements.

– No short-term rentals: Additional units must be rented out long-term and cannot be used for short-term rental purposes (e.g. Airbnb).

This latest announcement follows other recent moves by the government, including changes to mortgage rules that raised the limit on default insurance and reintroduced the 30-year amortization option for some borrowers.

In addition, Canada’s banking regulator OSFI plans to remove the stress test requirement for uninsured mortgage transfers, which previously made it difficult for homeowners to switch banks when renewing a mortgage.