Laneway houses have become a rising star in urban living. These compact, stylish, and functional homes are popping up everywhere in neighbourhoods like Leslieville, Toronto. They’re not just trendy—they’re a solution to some of the city’s most pressing challenges, such as affordable housing and better use of urban spaces.
If you’re wondering why laneway houses are gaining so much attention, you’ve come to the right place. Let’s explore the ins and outs of laneway houses, the exciting new mortgage rules for 2025, and how you can make the most of this golden opportunity.
What Are Laneway Houses?
Picture this: a small but charming home nestled at the back of a property, adjacent to a quiet laneway. That’s a laneway house! They’re self-contained units that make the most of underused urban spaces. Think of them as a modern way to breathe new life into Toronto’s laneways while addressing the city’s housing crunch.
Laneway houses, also called laneway suites, have several benefits:
- Affordable Housing: They provide much-needed rental options for families, students, and young professionals.
- Urban Density: By utilizing existing spaces, they help increase housing density without sprawling into green zones.
- Infrastructure Utilization: They rely on existing roads, plumbing, and electrical systems, reducing the need for new infrastructure development.
Thanks to new bylaws, it’s now easier than ever to build laneway and garden suites in Toronto. And as of January 15, 2025, financing these projects just got a whole lot simpler!
The Game-Changing Mortgage Rules for 2025
In the 2024 federal budget, the Canadian government introduced groundbreaking mortgage refinance rules aimed at encouraging urban densification. Here’s the scoop:
- Borrowers can now refinance up to 90% of the as-completed value of their home.
- Loans can be amortized over 30 years, making monthly payments more affordable.
- This applies to homes that include secondary suites, such as basement apartments or laneway houses.
Before this change, securing construction financing often required dealing with expensive specialty lenders. Now, thanks to the Canada Mortgage and Housing Corporation (CMHC) backing these loans, banks can offer better terms with lower interest rates. It’s a win-win for homeowners and lenders alike.
Breaking Down the Numbers
Let’s look at a real-world example of how this program works. Imagine you own a home in downtown Toronto valued at $1.4 million, with a $1 million mortgage balance. You plan to build a laneway house, which will cost $750,000.
Using the new refinance program:
- An appraiser estimates your home’s as-completed value (after construction) to be $2 million.
- The lender approves financing up to 90% of the as-completed value, which is $1.8 million.
- Subtract your existing mortgage of $1 million, leaving $800,000 available for construction.
This gives you the funds you need for the $750,000 project, with room to cover additional costs like permits and fees. However, keep in mind:
- A mortgage default insurance premium of 3.1% will be added to your loan (approximately $55,000).
- There’s also an 8% PST on the premium, which is an out-of-pocket cost of around $4,400.
Important Rules to Know
While this program is a game changer, there are some important rules and restrictions:
- You Must Own the Property: This program is for refinancing, not purchasing.
- Owner Occupancy Required: The property must be occupied by the owner or a close relative.
- No Short-Term Rentals: Airbnb or similar platforms are not allowed—units must be for long-term rentals.
- Self-Contained Units Only: The suite must have its own entrance, kitchen, and bathroom.
- Zoning Compliance: The unit must meet municipal zoning requirements.
- Property Value Cap: The as-completed value must not exceed $2 million.
For larger projects, like a fourplex with a laneway house, this $2 million cap may be restrictive. But if successful, we might see an expansion of this policy in the future.
Why Now Is the Perfect Time
These new mortgage rules make it easier and more affordable than ever to finance a laneway house or secondary suite. Not only do they help individual homeowners, but they also contribute to a broader effort to create sustainable urban growth in Toronto.
For those who’ve been dreaming about building a laneway house, there’s never been a better time to act. You’ll not only add value to your property but also generate rental income while helping to address the housing shortage.
Ready to Get Started?
If you’re thinking about building a laneway house or secondary suite, it’s essential to plan carefully. Here are some steps to get started:
- Consult an Expert: Speak with a mortgage broker to understand your financing options.
- Hire a Contractor: Work with a professional to develop a realistic budget and timeline.
- Check Zoning Requirements: Ensure your property meets all local bylaws.
- Appraise Your Property: Get an estimate of the as-completed value to determine how much you can borrow.
Let’s Build Something Great
Laneway houses are more than just homes—they’re a solution to Toronto’s housing challenges. With the new 2025 mortgage rules, financing your dream laneway suite has never been easier. If you’re ready to take the next step, I’m here to help.
I’m Chris Molder, a Toronto Mortgage Broker and proud Leslieviller. Whether you’re planning a laneway house or another renovation project, I’m just a phone call or email away. Let’s bring your vision to life!
