Homeowners wanting to rent out a basement or have their aging mom and dad move in might soon be better able to afford renovation costs. 

Beginning Jan. 15, the federal government is making it easier for homeowners to tap into an increased amount of their home equity to cover costs of secondary suites such as basement or garage apartments, laneway homes or main-floor additions.

The new rules allow homeowners to access up to 90 per cent of their property value, including the estimated value after adding a suite or suites, toward renovations up to a maximum value of $2 million. Previously, homeowners could borrow up to 80 per cent of their home’s value.

But experts warn to be careful before jumping in.

Ottawa’s new rules in the granny-flat game

In a bid to boost housing stock, beginning Jan. 15, the federal government has increased how much home equity you can tap for renovations. Here’s what you need to know:

Usage

Homeowner or a close relative must already occupy one of the current units, and the additional unit(s) must not be used for short-term rentals such as Airbnb. 

Unit type

New units must be self-contained — basement suites with separate entrances and laneway homes — and meet municipal zoning laws.

Number of units

Up to four dwelling units, including the existing property.

Property value limit 

The combined value of the renovated unit and eligible residential property must be less than $2 million.

Loan-to-Value limit

Up to 90 per cent of the property value, including the value added by the secondary suite(s) and other outstanding loans secured by the property.

Mortgage amortization limit

Up to 30 years

Source: Department of Finance Canada

The upside of the new rules is that it makes it easier for intergenerational families to live together, says Jason Heath, managing director at Objective Financial Partners. The downside is that it could encourage Canadians to put a disproportionate amount of their savings into real estate.

“I worry a little bit that this could cause people, who should be contributing to their RRSP account or their TFSA account or opening an RESP for their kids, to dump their savings into real estate.”

Already, real estate represents more than half of all household wealth in Canada, while Statistics Canada reports that mortgages account for about 75 per cent of household debt.

Ian Calvert, vice-president and principal at Toronto-based HighView Financial Group, says borrowers should consider how refinancing fits into their financial plan and warns that renovation costs can quickly exceed your budget.

The costs of a full basement renovation depend on several factors, such as size, complexity and material quality.

The average finished basement costs range from $45 to $95 a square foot, according to Toronto-based renovation firm Capable Group. This can add up to between $45,000 and $95,000 for a 1,000-square-foot basement.

“Big renovations are time-consuming, expensive and messy,” says Calvert. “Things can get uncovered — a lot of stuff can come up in these projects and they can always take longer than you think.”