The latest policy change from the Canada Mortgage and Housing Corporation (CMHC) is making waves in the real estate community. Some experts see it as a golden opportunity, while others urge caution. Let’s break down what this new policy means for real estate investors and homeowners.

CMHC’s New Refinancing Program: What’s Changing?

Starting in January 2025, CMHC will allow refinancing for multi-unit residential properties, enabling homeowners to access their property’s equity to build additional units—up to four per property. The objective is clear: to expand housing supply and provide more financing options for those looking to invest in their properties.

This is a significant shift from CMHC’s 2016 policy, which restricted refinancing beyond 80% of a property’s value. Previously, while homebuyers could purchase with as little as a 5% down payment, their ability to refinance was strictly limited. The new program reopens the door for homeowners to leverage their property’s value for expansion and investment.

How Does It Work?

Suppose your property is currently worth $1 million, and you plan to build a laneway suite for $300,000. Under this new policy, you can refinance up to 90% of the property’s future value after the addition. If the post-renovation valuation reaches $1.3 million, your maximum refinancing amount would be $1.17 million. If you have an existing mortgage of $800,000, that means you could unlock up to $370,000 in equity for your project. If your construction costs are only $300,000, this program could be an ideal fit.

Attractive Financing Terms

The interest rates for this refinancing program are another major perk. Although it’s categorized as a construction loan, the rates are comparable to standard mortgage rates—around 4% for fixed terms, with variable rates potentially lower. The program also offers flexibility with staged payments as construction progresses. However, there are important conditions to note:

• The property must be owner-occupied, meaning you or a family member must live in one of the units.
• The additional units must be legal and designated for long-term rentals, ruling out short-term rental platforms like Airbnb.

For homeowners looking to add rental suites or accommodate family members, this program presents a valuable opportunity to enhance their property while addressing housing shortages.

Income Requirements and Stress Testing

While the policy opens new financing doors, not everyone will qualify easily. CMHC still enforces a stress test, which means borrowers must meet certain income thresholds. For example, if you are refinancing $1.1 million, your household income must be at least $200,000 to qualify. If your income falls below this threshold, the program may not be an option for you.

What’s Changing in Mortgage Policies for 2025?

Beyond the CMHC refinancing program, broader mortgage policies are also evolving in 2025. The Office of the Superintendent of Financial Institutions (OSFI) has introduced a Loan-to-Income (LTI) ratio, which limits borrowing to 4.5 times a borrower’s annual income. For instance, if you earn $100,000 per year, the maximum mortgage you can qualify for is $450,000.

Banks are now required to ensure that 75% of their mortgage lending adheres to this standard. While there is some flexibility—25% of loans can exceed the LTI cap—this shift could make it more challenging for self-employed individuals or those with irregular income streams to secure larger loans.

Interest Rate Outlook: A Silver Lining

On the positive side, interest rates are expected to continue declining in 2025, which will improve affordability for many borrowers. However, while borrowing costs may decrease, stricter income requirements mean that getting approved for a mortgage may still be an uphill battle for some.

Final Thoughts

CMHC’s new refinancing policy provides a compelling opportunity for homeowners seeking to maximize their property’s potential while contributing to rental housing supply. However, the income and stress test requirements may limit access for some borrowers. As mortgage policies tighten in 2025, investors must carefully assess their financial position and borrowing capacity.

With lower interest rates on the horizon but stricter lending rules in place, 2025 will present both opportunities and challenges for real estate investors. Staying informed and planning strategically will be essential for navigating these changes successfully.