Garden Suite and ADU Financing in Ontario: Every Way to Pay for the Build

Ontario now lets most homeowners put three units on one lot. Getting permission for a backyard suite has never been easier. Paying for one is a different story, and it's the part nobody explains well.

Here's the short answer. Most Ontario homeowners finance a garden suite or ADU in one of five ways: a 90% insured refinance, a conventional refinance or HELOC at 80%, a B lender, a private second mortgage, or cash. Which one fits comes down to two numbers. How much equity you have today, and what the property will be worth once the suite is finished.

[KAT: add one real, anonymized detail from a suite or garden suite file here, such as what a build quote came in at or why a bank said no. Delete this line if you don't have one.]

What Ontario Actually Lets You Build

Since Bill 23, the More Homes Built Faster Act, Ontario's Planning Act allows up to three residential units on most lots with full municipal water and sewer. That can be three units inside the house, or two in the house and one in a separate building like a garden suite, a laneway home or a converted garage. No rezoning.

The province took two costs off the table too. Municipalities can't charge development charges or parkland fees on these additional units, and they can't require more than one parking space per unit. On a detached build, that exemption matters.

What your town still controls is everything physical: size, height, setbacks, lot coverage, servicing. Rural lots on a well and septic aren't covered by the as-of-right rule at all. Call the planning department before you pay an architect. It's a free phone call, and it can save you a set of drawings you can't use.

Garden Suite, ADU, Laneway House: Same Thing to a Lender?

Mostly, yes. ADU means additional dwelling unit, and Ontario's official term is additional residential unit. A garden suite is a detached one in the backyard. A laneway house is a garden suite with frontage on a laneway, which is largely a Toronto thing. A legal basement apartment or in-law suite counts as well. Lenders and insurers tend to call all of them secondary suites, and they care far more about whether the unit is legal and self-contained than what you call it.

Option 1: The 90% Insured Refinance

This is the one that changed the math. Since January 15, 2025, you can refinance up to 90% of your property's value to build a new self-contained unit, as long as the mortgage is insured by CMHC, Sagen or Canada Guaranty. Before that date, 80% was the ceiling on every refinance in Canada.

The rules below come straight from the insurers' own product pages:

Rule	Limit
Maximum loan to value	90% of the lending value
Property value	As-improved value under $2,000,000
Units	Up to 4 in total, including the existing home
Amortization	Up to 30 years (0.20% premium surcharge past 25)
Occupancy	You, or a close relative living rent-free, in an existing unit
Debt ratios	39% GDS, 44% TDS
Short-term rental	Not allowed (under 90 consecutive days)
Use of funds	Construction only, no equity take-out

For a garden suite, the detail that matters most is lending value. It's the lower of the appraiser's as-improved value or today's value plus the build cost. A detached unit usually adds real value to a lot, so the finished number can carry a file that would never work on today's value alone.

The cost is the insurance premium, which gets added to your mortgage, plus 8% Ontario sales tax on that premium, paid in cash at closing. I've gone through the full rules and a worked example in my post on the 90% LTV refinance for a secondary suite.

Option 2: A Conventional Refinance or HELOC

Got plenty of equity? Skip the insurance.

A regular refinance goes to 80% of today's value. A HELOC can go to 65% on the revolving portion, or up to 80% combined with a mortgage. No premium on either, and no rules about what you do with the unit afterward. Short-term rental, if your town allows it. Your mother living there for free. The lender doesn't care.

A HELOC has one more thing going for it on a build: you draw what you need when the contractor invoices, and you only pay interest on what's actually out. The weakness is obvious. It's 80% of today's value, not the finished value, and on a home with thin equity it simply won't reach.

One more wrinkle worth knowing. Insured mortgages often price lower than uninsured ones, so even when a conventional refinance works, it's worth pricing both before you decide the premium isn't worth paying.

Option 3: A B Lender

The insured program has hard edges. Self-employed with two years of low declared income. A credit score under 600. Debt ratios over 44%. A property worth $2 million or more. Any one of those and the insurers are out.

That's where B lenders come in. They'll refinance to 80% of value and they're much more flexible about income and credit, which is why they're often the answer for self-employed homeowners. Some will do a proper construction mortgage with a draw schedule, advancing money as the build progresses. Rates run above the banks and there's usually a lender fee, so the file needs to make sense after those costs, not before. I cover how draws work in my guide to construction loans in Ontario.

Option 4: A Private Second Mortgage

Sometimes the gap is small and short. Your first mortgage is at a rate you'd hate to lose, breaking it means a big penalty, and you need another $60,000 to finish. A private second sits behind your existing mortgage without touching it.

It's expensive money. Double-digit rates are common, plus lender and broker fees. It only makes sense with a clear exit, usually folding everything into one mortgage once the suite is finished, appraised and rented. If you can't explain the exit in one sentence, don't sign. More on how these work in my straight talk on private lenders.

What Happened to the $80,000 Secondary Suite Loan?

If you've read about a federal loan of up to $80,000 at 2% for building a suite, you're not imagining it. The December 2024 Fall Economic Statement doubled the planned limit of the Canada Secondary Suite Loan Program to $80,000, at 2% over a 15-year term, with a launch promised for early 2025.

It never opened. No application process, no approvals. By September 2025 the federal housing department was telling homeowners to consider refinancing instead, and the program doesn't appear in the housing chapter of Budget 2025. Several industry sources report it was dropped altogether. Whatever the official wording ends up being, you can't apply for it today.

So don't hold your build waiting on it. And be wary of anyone still marketing the $80,000 loan as something you can get. The insured refinance is the federal program that actually exists.

Grants, Rebates and Local Programs

Some Ontario municipalities run their own incentives for additional units: forgivable loans, fee waivers, rebates tied to renting below market. They change constantly, and most come with conditions, like capping the rent for a set number of years. I'm not going to list them, because anything I write here will be stale by spring. Ask your planning department directly. Then ask what the strings are before you count the money.

How the Options Compare on One Build

Numbers make this clearer. Say your home is worth $950,000 and a builder quotes $250,000 for a garden suite. The appraiser puts the finished property at $1,250,000. That makes the lending value $1,200,000 (today's value plus the build, since that's lower), and 90% of it is $1,080,000. Here's how it plays out at three different mortgage balances:

Current balance	Conventional refi at 80%	90% insured refi
$450,000	Works. $310,000 of room, no premium	Works. About 58% LTV, premium roughly $4,200
$650,000	Short by $140,000	Works. 75% LTV, premium roughly $15,300
$850,000	Doesn't work	Short by $20,000 at the 90% ceiling

The middle row is the whole reason the program exists. Same house, same suite, and the only thing that changed was a $200,000 difference in the mortgage balance. Those premium figures assume a 25-year amortization and a mortgage that isn't already insured, and they leave out the Ontario sales tax.

The bottom row is where people get stuck. The fixes are a smaller build, cash for the gap, or a B lender or private route until the suite is finished and the value is proven. Not ideal. Workable, sometimes.

What Lenders Want Before They Fund a Garden Suite

Expect to hand over more paper than a normal refinance. Permit drawings, ideally the permit itself. A fixed-price contract or a detailed quote, not a number on a napkin. Proof the builder carries insurance. An appraisal that gives both the as-is and the as-improved value, and a market rent opinion if you're using the future rent to qualify, which Sagen and Canada Guaranty both allow.

Timing is the trap. CMHC wants insured financing approved before construction starts, or at a very early stage, so build first and ask later and you've probably lost the program. Money then comes out in draws as the work hits milestones, with the insurers paying for up to four progress inspections. Your contractor will want a deposit long before the first draw lands. Plan for that cash.

My Take

If you have the equity, a conventional refinance or a HELOC is the simplest route. If you're close but short, the 90% refinance was built for exactly your file, and the as-improved value is the lever that makes it work. If the bank's boxes don't fit you, that's a B lender conversation, and that's the kind of file a broker is actually for.

What I wouldn't do is sign a contractor before the financing is approved. Numbers first. Shovels second.

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