Adding Units in Ontario: What the New Rules Mean for Your Mortgage
Ontario and its cities now allow more units on ordinary residential lots than they did a few years ago. The zoning is only half of it. The other half is how you pay for the build.
The short version
- The More Homes Built Faster Act, 2022 opened the door to additional units on most residential lots, and cities like Kitchener and London now allow up to four units in many cases.
- Your municipality still controls the details: zoning, setbacks, driveways, permits, and sometimes temporary restrictions.
- Adding a unit changes more than the floor plan. It changes the property's value, your insurance, your property tax and how a lender looks at the file.
- There are three main ways to pay for it, and the right one depends on the size of the project and whether the new unit needs to count toward what you can borrow.
What changed, and where
A few years ago, adding a second unit to an Ontario house meant a rezoning conversation in a lot of places. Today, in many cities, a basement suite, a garden suite or a conversion to a triplex is something the zoning already contemplates. The rules moved quickly, and they are still moving.
The provincial change came through the More Homes Built Faster Act, 2022, which amended the Planning Act so that most municipalities must permit additional residential units on residential lots served by municipal water and sewer. Ontario's own homeowner guide to second units now carries a note that some of its content may not yet reflect those changes, which tells you how recent they are.
Several cities have gone further than the provincial floor. The City of Kitchener says you may be able to build up to four dwelling units on lots that currently permit a single detached, semi-detached or street townhouse dwelling. The City of London permits a maximum of three additional residential units per lot, which makes four in total, and says no additional parking is required for them.
What your city still controls
Permission in principle is not permission for your lot. Every city we work in still applies its own zoning to the details, and the details decide whether a project works.
- Setbacks and lot coverage. How close a detached unit can sit to your lot lines, and how much of the lot can be built on.
- Driveways and access. London, for example, does not permit additional driveways to serve an additional unit.
- Building permits and inspections. Ontario's guide says you will need a building permit, and the work must meet the Building Code, with inspections during construction.
- Temporary restrictions. London notes that certain additional-unit rules are temporarily superseded by an interim control by-law while it is in effect.
That is why the first call on any of these projects is to your municipality's zoning and building departments, before anyone draws a plan.
What adding a unit does to your mortgage
The new unit changes the property, so it changes the file. A few things to think through before the build starts:
- Value. A finished second or third unit usually changes what the property is worth, and a construction mortgage can be sized on that finished value through an as-complete appraisal.
- Occupancy. A home with a suite you live in is treated differently from a property you rent out entirely. The lender will want to know which one it is financing.
- Rental income. How much of the rent a lender will count toward qualifying depends on the lender and on whether the mortgage is insured. We cover that in secondary suite income and mortgage qualifying.
- Insurance and property tax. A new unit changes both. Talk to your insurer before construction starts, not after.
- Your existing mortgage. Read its terms. A material change to the property is something your current lender may want to hear about.
Three ways to pay for it
Which route fits depends on the size of the project and on whether the new unit needs to count toward what you can borrow.
- A refinance. One sum at closing, sized on today's value, up to 80%. It suits a modest project where you already have the equity.
- A line of credit. Flexible and drawn as needed, but limited to today's equity. The new unit adds nothing to the limit.
- A construction mortgage on the finished value. The Blueprint Build Plan lends up to 80% of the as-complete value, pays the build out to you in inspected draws with a 15% holdback until completion, and charges interest only during construction. It suits new units, additions and full rebuilds of up to four units.
Before anyone draws a plan
- Call your municipality's zoning desk and confirm what your lot allows.
- Line up a designer or architect. Kitchener requires one if you are proposing three or more units in a building.
- Get an itemised contractor quote, not a single number.
- Work out where the 15% holdback and any contingency will come from.
- Talk to a mortgage broker before you sign a construction contract, so the financing is sized on the plan rather than the other way round.
London is also worth watching for anyone building there. The city now supports designs from the CMHC Housing Design Catalogue for additional units, which it describes as near permit-ready, though they still need to be adapted to your specific lot by a qualified professional.
Nearly thirty years in Canadian financial services, based in Waterloo Region and working across Ontario. Most people are handed a product — you deserve a plan.
How a lender treats a new unit, what an appraiser will value it at, and what your municipality permits all vary by property and by file. Everything here is illustrative and subject to lender approval and final terms.
Sources: Ontario e-Laws — Planning Act · Government of Ontario — Add a second unit in your house · City of Kitchener — Additional dwelling units · City of London — Additional Residential Units