Refinancing to build a basement apartment or garden suite in Toronto

You can refinance to 90% to build a secondary suite

CMHC has a refinance product designed specifically for creating a secondary suite — a basement apartment, a laneway or garden suite, a legal second unit. It allows insured financing up to 90% of the lending value or as-improved property value, well above the 80% ceiling a conventional refinance is limited to, with a maximum amortization of 30 years.

That extra 10% is the whole point. On a Toronto property, ten percentage points of value is a meaningful construction budget, and it is the difference between a project that can be financed and one that cannot.

The programme is narrow, though, and the narrowness is deliberate. CMHC is insuring the creation of long-term rental housing, so the conditions are written to produce long-term rental housing. If your plan is a short-term rental, this programme is not available to you, and I would rather you learn that here than three weeks into an application.

The 90-day rule is the trap

CMHC requires that the suite must not be rented for any period of less than 90 consecutive days. Read that as what it is: a prohibition on short-term rental, written into the insurance conditions.

This is the single most common reason the conversation ends. Someone has run the numbers on a nightly-rate basement unit in a desirable Toronto neighbourhood, found the gross revenue attractive, and assumed a programme that finances suite construction will finance that suite. It will not. The programme finances housing, and nightly rental is not housing for this purpose.

I run a short-term rental management business alongside my mortgage practice, so I am not going to pretend nightly rental is a bad business. It is a real business with real returns. But it is not what this programme is for, and using insured funds on a representation that the unit will be a long-term rental when you intend otherwise is not a grey area — it is misrepresentation on an insured mortgage application. Do not do it, and do not let anyone talk you into it.

If nightly rental is genuinely the plan, the financing route is different: a conventional refinance to 80%, or an investment property mortgage, with the project costed against that lower ceiling. Less leverage, no insurance condition on the use. That is the honest trade.

Qualifying: the stress test does apply here

People sometimes assume that because an insured straight switch at renewal is exempt from the minimum qualifying rate, insured products generally are soft on qualifying. Not this one. CMHC specifies that the maximum GDS of 39% and TDS of 44% are calculated at the greater of the contract rate plus 2% or 5.25% — the minimum qualifying rate, applied explicitly.

So the test is: at the qualifying rate, on the new larger mortgage, your housing costs must stay within 39% of gross income and your total debt service within 44%. That is a real constraint on a Toronto property at 90% of an as-improved value, and it is where most borderline files are decided.

Two things make the arithmetic less hostile than it first looks. The 30-year maximum amortization lowers the qualifying payment relative to a 25-year schedule. And lenders will generally consider rental income from the completed suite in the ratios, though how much of it they count, and what documentation they want, varies by lender — that treatment is a lender-level policy, not a CMHC rule, and it is worth comparing. It is one of the clearest cases where running a file past thirty-plus lenders rather than one changes the answer.

CMHC also publishes premium surcharges on this product: 0.20% for amortizations beyond 25 years, and 0.60% where the amortization is blended. The premium itself is subject to Ontario PST, and the PST cannot be added to the loan — budget for it as cash at closing. Our down payment guide covers how insurance premiums and that PST work in more detail.

When the conventional 80% route is the better answer

The insured programme is not automatically the right choice, and I will talk clients out of it when it is not.

If you have enough equity that a conventional refinance to 80% covers the construction budget comfortably, taking the conventional route avoids an insurance premium and the PST on it, avoids the use-of-funds restriction, and avoids the 90-day rental condition. You keep the flexibility to do what you like with the unit, including nightly rental, and you keep the flexibility to spend some of the proceeds on something else.

If the as-improved value is at or above $2,000,000, the insured programme is out regardless, and a conventional refinance or a secured line of credit is the route. A line of credit can suit a staged build particularly well, since you draw only what you spend.

Where the insured programme wins decisively: you need more than 80% to make the project work, you are committed to long-term rental, and your ratios hold at the qualifying rate on a 30-year amortization. That is a specific borrower, and when it is you, the extra 10% is worth the conditions. Start with the refinance page or call (647) 761-1646 and describe the property.

Last reviewed October 2026. The programme terms above are taken from CMHC's published product page for its refinance product for secondary suites. CMHC does not state an effective date on that page and notes the information is subject to change; industry commentary circulates a date, but I have not been able to confirm one from a primary source, so none is stated here. The minimum qualifying rate of the greater of contract rate plus 2% or 5.25% is OSFI's current setting and is reviewed at least annually. Toronto zoning and garden suite rules change independently of the financing rules — confirm both before committing to a build.