Here’s something most homeowners don’t know: you can refinance your primary home and pull out cash to add a rental unit. And you can do this at up to 90% of your home’s value through a special CMHC program.
This isn’t just some niche option anymore. It’s becoming the future of real estate investing in Canada. With housing shortages across the country and new rules making it easier to add units to your property, this program is worth understanding.
What Is the CMHC ADU Refinance Program?
The government of Canada, through CMHC, lets you refinance your primary residence to fund the construction of an additional dwelling unit (ADU). That could be a basement apartment, a laneway house, a garden suite, or a backyard unit.
Here’s what makes it special: CMHC will lend you up to 90% of your home’s completed value. Not what it’s worth today, but what it will be worth after you add the unit. This means you might not need existing equity to make this work.
The Basic Requirements
The program has a few key rules:
- Your property value must be under $2 million
- You must use the funds specifically to add a rental unit
- The loan is based on your home’s future completed value
- You’ll pay CMHC insurance premiums on the loan
Understanding the CMHC Premium
Just like when you first bought your home with less than 20% down, there’s a CMHC fee involved here. The good news? You only pay a premium on the top-up amount, not your entire mortgage balance.
If your home already has CMHC insurance, you won’t repay that original premium. You’ll just pay on the new money you’re borrowing. Top-up premiums are higher than new ones, but it’s still cheaper than paying a fresh premium on the whole balance.
The premium gets added to your loan amount, so you don’t need to pay it out of pocket.
Since CMHC only charges the top-up premium on the new money you borrow rather than your entire balance, the math can work out better than you expect — book a free strategy call with LendCity and we’ll run the numbers for your specific home.
The 80% Option Without CMHC
Don’t want to pay CMHC premiums? Some lenders will do this same deal at 80% of your completed value instead of 90%. You avoid the insurance cost, but you get less money to work with.
What Counts as an ADU?
Different cities call these different things, but they’re all additional dwelling units. You have options:
- Basement apartments (some people are even underpinning their foundation to create proper ceiling height)
- Backyard cottages or garden suites
- Laneway houses
- Garage conversions
- Second or third units within your existing structure
The rules vary wildly by location. Ontario generally allows up to three units per property without rezoning, though not every municipality follows this. Edmonton might let you build up to eight units depending on your lot size. Toronto calls this approach “the missing middle.”
Whether you choose the 90% CMHC route or the 80% conventional option, picking the right program depends on your property value and how much rental income you need — book a free strategy call with us and we’ll compare both paths for you.
Getting Your Quotes and Avoiding Overpaying
Here’s a warning: prices for ADU construction vary dramatically. Get multiple quotes before committing to anything.
Some people pay way more than they should because they don’t shop around. We’ve seen everything from tiny prefab units to full custom builds, and the price differences are shocking even for similar products.
Also, pad your budget. Construction always costs more than you expect. Materials go up in price. You start demo and find problems you didn’t know existed. Build in a cushion so you’re not scrambling halfway through the project.
Don’t Forget Your Lot and Zoning Rules
Before you get too excited, check your local rules. Most areas limit how much of your lot can be covered by buildings. Your contractor can usually tell by looking at your lot size and existing home placement whether an ADU will fit.
If you want to build a two-story unit but your house is single-story, you might need to apply for a variance (or whatever your city calls their exception process). These applications are getting easier as governments try to encourage more housing, but it’s still an extra step.
Why This Makes Sense Right Now
Canada has a housing shortage. Adding rental units helps with that, but it also helps your family’s finances. That extra rental income can make a real difference in your monthly budget, and if your existing rentals are underperforming, learn how to fix negative cash flow on rentals.
Interest rates appear to be dropping, which makes borrowing more attractive. New policies are speeding up approvals and making permits easier to get. The timing is actually pretty good for this type of project.
Can You Do This on rental properties?
The 90% CMHC program is specifically for your primary home. But if you own rental properties and want to add units there, you can still do this at 80% (conventional financing with 20% equity).
The same local zoning rules apply. You still need to follow your municipality’s guidelines on how many units they allow per property. But yes, you can absolutely do this strategy on investment properties you already own.
Next Steps
This program requires working with someone who understands the ins and outs. Most mortgage professionals don’t deal with these applications regularly because they’re more complex than standard refinances.
Start by having a conversation with an expert who can look at your specific property and situation. There’s no cost to explore your options. You’ll learn what’s possible, get real numbers, and can decide if it makes sense for you.
The key is getting the right team around you from the start. That includes the right financing, the right contractor, and the right understanding of your local rules. Do that, and adding a rental unit to your property can be a game-changer for your residential mortgage financing.
Frequently Asked Questions
What is the CMHC ADU refinance program?
Do I need existing equity in my home to qualify?
What's the maximum property value for this program?
Can I avoid paying CMHC premiums?
What types of units qualify as ADUs?
Can I use this program on rental properties I already own?
What amortization can I get with this program?
How much does it cost to build an ADU?
Disclaimer: LendCity Mortgages is a licensed mortgage brokerage, and our team includes experienced real estate investors. While we are qualified to provide mortgage-related guidance, the broader financial, tax, and legal information in this article is provided for educational purposes only and does not constitute financial planning, tax, or legal advice. For matters outside mortgage financing, we recommend consulting a Chartered Professional Accountant (CPA), licensed financial planner, or qualified legal advisor.
Written by
LendCity
Published
December 22, 2025
Reading Time
6 min read
Amortization
The period over which a mortgage is scheduled to be fully paid off through regular payments of principal and interest. In Canada, common amortization periods are 25 or 30 years, though the mortgage term (when you renegotiate) is typically 1-5 years.
CMHC Insurance
Mortgage default insurance from Canada Mortgage and Housing Corporation. For 1-4 unit investment properties, investors must put 20%+ down (no insurance available). However, CMHC offers MLI Select for 5+ unit multifamily properties, and house hackers can access insured mortgages with 5-10% down.
Cash Flow
The money left over after collecting rent and paying all expenses including mortgage, taxes, insurance, maintenance, and property management.
Equity
The difference between a property's current market value and the remaining mortgage balance. If your home is worth $500,000 and you owe $300,000, you have $200,000 in equity. Equity builds through mortgage payments, appreciation, and property improvements.
LTV
Loan-to-Value ratio - the mortgage amount expressed as a percentage of the property's appraised value or purchase price (whichever is lower). An 80% LTV means you're borrowing 80% and putting 20% down. Lower LTV generally means better rates and terms.
Refinance
Replacing an existing mortgage with a new one, typically to access equity, get a better rate, or change terms. Investors commonly refinance to pull out capital for purchasing additional properties (cash-out refinance) while retaining ownership of the original property.
Appraisal
A professional assessment of a property's market value, required by lenders to ensure the property is worth the loan amount.
Passive Income
Earnings from rental properties or investments that require minimal day-to-day involvement. The goal of most real estate investors seeking financial freedom.
Interest Rate
The cost of borrowing money, expressed as a percentage. It determines how much you pay on top of the principal borrowed.
Rental Income
Revenue generated from tenants paying rent on an investment property. Gross rental income is the total collected before expenses, while net rental income subtracts operating costs to show actual profitability.
Contractor
A licensed professional hired to perform construction, renovation, or repair work on investment properties. Using licensed and insured contractors is essential for permitted work, as unlicensed contractors can result in voided insurance, property liens, and liability for injuries.
Zoning
Municipal regulations that dictate how properties in specific areas can be used, including residential, commercial, industrial, or mixed-use designations. Zoning bylaws affect what investors can do with properties, including rental restrictions, multi-unit conversions, and home-based businesses.
Laneway House
A small detached dwelling built on an existing residential lot, typically facing a rear lane or alley. Also called garden suites or coach houses, laneway homes increase rental income and property value using existing land and infrastructure.
ADU
Accessory Dwelling Unit - a secondary residential unit on a single-family property, such as a basement suite, laneway house, garden suite, or in-law suite. ADUs increase rental income and property value while leveraging existing land and infrastructure.
Foundation
The structural base of a building that transfers loads to the ground. Foundation issues such as cracks, settling, or water intrusion are among the most expensive repairs in real estate and can significantly impact property value and financing eligibility.
Secondary Suite
A self-contained rental unit within or attached to a single-family home, such as a basement apartment, laneway house, or garden suite. Secondary suites help investors generate additional rental income from one property and can qualify for rental offset programs that improve mortgage qualification.
Construction Financing
A short-term loan that funds the building or major renovation of a property, disbursed in stages (draws) as construction milestones are completed. Once building is finished, the construction loan is typically replaced with a permanent mortgage through a process called takeout financing. Interest is charged only on the amount drawn.
Insured Mortgage
A mortgage backed by mortgage default insurance from CMHC, Sagen, or Canada Guaranty, required when the down payment is less than 20% on owner-occupied properties. The insurance premium (ranging from 2.8% to 4% of the mortgage) is added to the loan. Insured mortgages qualify for lower interest rates because the lender's risk is covered by the insurer.
Hover over terms to see definitions, or visit our glossary for the full list.