Key Financing & Regulatory Terms

A requirement in some government-funded programs that the rental unit must remain affordable for a set period in exchange for financing assistance.

The estimated market value of a property after renovations, improvements, or redevelopments have been completed. It is commonly used in real estate and financing to assess the potential value of a property once upgrades, such as adding secondary suites, laneway houses, multiplex units, or other gentle density infill, have been made.

The length of time over which a loan is repaid, including both principal and interest. It affects monthly payments and total interest costs over the loan’s lifetime. In Canada, most mortgages have a 25-year amortization, though periods can range from 15 to 30 years.

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• Shorter amortization (15-20 years) → Higher monthly payments, but lower total interest costs.
• Longer amortization (25-30 years) → Lower monthly payments, but higher total interest paid.

An independent assessment of a property's value, typically conducted by a certified appraiser. Essential for determining the maximum loan amount for financing ADUs or multiplex projects. The appraised value often impacts eligibility for loans like construction loans or HELOCs

A large, lump-sum payment due at the end of a loan term, common in some commercial or short-term construction loans.

A refinancing option that combines an existing mortgage with a new loan at a weighted average interest rate, sometimes used when adding financing for an ADU or multiplex conversion.

A short-term loan designed to provide immediate financing during transitional periods, such as purchasing a new home before selling the current one or undertaking significant renovations. A bridge loan can provide the necessary funds to initiate construction while awaiting longer-term financing solutions or the sale of another asset.

Designed for income-generating properties, including multiplex conversions and small-scale rental developments. If a multiplex conversion is classified as a commercial venture and operates as a rental business, it may qualify for business financing instead of a traditional residential mortgage. Unlike residential mortgages, which assess personal income and creditworthiness, commercial mortgages focus on the property’s revenue potential, Debt-Service Coverage Ratio (DSCR), and overall project feasibility.

Tax payable on the profit from selling a property, which may apply if the property was used as a rental business.

Refinancing option that allows homeowners to replace their existing mortgage with a new, larger mortgage and withdraw the difference in cash. This enables homeowners to access their home equity as a lump sum, which can be used for renovations, building additional units like garden suites or secondary dwellings, or other financial needs. In Canada, a cash-out refinance typically requires at least 20% equity in the home and allows borrowing up to 80% of the home’s appraised value

A construction loan is a short-term loan used to finance the building, renovation, or conversion of a property, including ADUs, multiplex conversions, and small-scale rental developments. Unlike a traditional mortgage, which funds a completed home, construction loans provide progress-based funding—meaning the lender disburses funds in draws (installments) based on project milestones, such as site preparation, framing, and final inspections.

Combines construction financing with a permanent mortgage after project completion. Streamlines financing for larger gentle density projects.

Raising capital through small contributions from many people. Can fund creative or community-oriented gentle density projects.

A key financial metric that measures whether a property’s net operating income (NOI) is sufficient to cover its debt payments. It is calculated as DSCR = Net Operating Income ÷ Total Debt Service.

Standard Benchmarks:

• Below 1.0 – Negative cash flow; typically not accepted by lenders.
• 1.0 - 1.1 – Limited financing options; may require additional assets or strong borrower profile.
• 1.1 - 1.25 – Meets minimum requirements for some lenders, including CMHC financing for multi-unit residential properties.
• 1.25 - 1.4 – Preferred by most lenders for commercial and multifamily properties; improves loan terms.
• Above 1.4 – Strong financial position; may qualify for lower interest rates and higher loan-to-value ratios (LTVs).

The ratio of monthly debt payments to gross monthly income.

Determines borrowing capacity for financing gentle density projects. High DTI can limit access to traditional loans.

‍Standard Benchmarks:

• Below 36% – Generally considered ideal for securing traditional loans with favorable terms.
• 36% - 43% – Commonly accepted for conventional financing but may require strong credit or additional assets.
• 43% - 50% – Considered higher risk; may still qualify for certain government-backed loans or alternative financing.
• Above 50% – Often difficult to secure financing without compensating factors (e.g., high savings, strong assets, rental income).

Fees that municipalities charge when adding new housing units, such as ADUs or multiplexes, to help cover the cost of roads, water, sewage, and community services. These fees are paid when applying for a building permit and can increase overall project costs. The amount varies by city and project type, but some municipalities offer exemptions or deferrals to encourage gentle density housing.

A structured financial plan that outlines when funds are released during a construction or renovation project, ensuring steady cash flow aligned with project milestones. Commonly used in construction loans, CMHC-backed financing, home equity loans, and renovation loans, draw schedules help manage financial risk for both borrowers and lenders by tying fund disbursements to verified construction progress.

Selling ownership stakes in exchange for capital. Offers funding for ADUs or multiplexes, especially for larger projects.

A loan with an interest rate that remains constant throughout the term. Provides predictability for homeowners financing ADUs or multiplex conversions, especially for long-term projects.

A type of loan that does not require repayment if certain conditions are met. Many government housing programs offer forgivable loans to incentivize affordable housing, energy efficiency, and accessibility upgrades. The conditions may include:

• Completing the project within a specified timeframe.
• Maintaining affordable rental rates for a set number of years.
• Meeting specific energy efficiency or accessibility requirements.

A non-repayable financial contribution, typically provided by the government, non-profits, or housing agencies. Unlike loans, grants do not require repayment but may have eligibility requirements and reporting obligationsGrants help offset the cost of ADU or multiplex construction and often focus on:

• Housing affordability (e.g., secondary suite programs).
• Energy efficiency upgrades (e.g., insulation, solar panels).
• Accessibility improvements (e.g., barrier-free renovations).

Loans or incentives for eco-friendly projects. Can be used for sustainable ADU or garden suite construction.

• Hard Costs – Direct construction expenses (e.g., materials, labor)
• Soft Costs – Indirect costs (e.g., permits, architectural fees, insurance).

A revolving credit line secured by home equity. Provides flexibility to finance ongoing projects like ADUs or secondary suites.

A lump-sum loan secured by home equity. Widely used for financing ADUs or other renovations.

A HESA is a non-debt financial agreement that allows homeowners to unlock a portion of their home equity in cash, without taking out a loan or making monthly payments. In exchange, the investor receives a share of the home’s future appreciation or depreciation when it is sold or the agreement ends.

A loan designed for renovations, home additions, or the construction of ADUs and garden suites. Unlike a renovation loan, which is typically secured against home equity (e.g., a home equity loan or HELOC), a home improvement loan can be either secured or unsecured. Unsecured home improvement loans are based on creditworthiness rather than home equity, making them accessible to homeowners with limited equity but often at higher interest rates and shorter repayment terms. Some lenders also offer secured home improvement loans, which may provide lower interest rates by using the home as collateral.

Rental affordability benchmarks used in government housing programs and funding incentives, particularly by CMHC. These tiers help determine eligibility for forgivable loans, grants, or financing assistance for secondary suites, ADUs, and multiplex conversions.

• Level 1 Affordable: Rents set below the 80th percentile of market rents, ensuring affordability for moderate-income households.
• Level 2 Affordable: Rents set below the 65th percentile of market rents, offering greater affordability and qualifying for higher financial incentives.

Some programs use alternative affordability metrics, such as CMHC's MLI Select and Rental Construction Financing Initiative (RCFI), which link affordability to median renter income rather than market rents. Definitions and requirements vary by program and municipality, so property owners should check local criteria when applying for funding.

The percentage charged by lenders for borrowing money. Affects the affordability of financing options for gentle density housing, especially for long-term loans.

An interest-only loan is a financing option where the borrower initially pays only the interest on the principal for a set period, typically 5 to 10 years, before starting full principal payments. This structure can lower initial monthly payments, making it useful for bridge loans, construction financing, or short-term investment strategies.

A partnership pooling resources for a project. Allows homeowners or developers to share the costs and risks of gentle density housing.

A contract outlining terms for renting property. Rental income can help offset financing costs for ADUs or multiplexes.

A Line of Credit (LOC) is a flexible borrowing option that provides access to funds up to a set limit, allowing borrowers to withdraw, repay, and reuse funds as needed. It is typically unsecured (based on the borro wer’s creditworthiness) but can also be secured against an asset, such as a home (Home Equity Line of Credit – HELOC).

A Personal Line of Credit (PLOC) is a specific type of LOC that is unsecured and based on the borrower’s income, credit history, and debt-to-income ratio (DTI). It is often used for smaller home improvement projects, renovations, or covering short-term expenses related to gentle density developments like ADU additions or multiplex conversions.

The percentage of a property’s value that a lender is willing to finance. It's calculated by dividing the loan amount by the property’s value and expressing it as a percentage. A lower LTV ratio can make it easier to secure favorable loan terms as lenders often view lower LTVs as less risky, which can lead to better interest rates and loan conditions.

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Standard Benchmarks:

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• 80% or lower – Considered ideal for traditional mortgage financing; may qualify for the best interest rates and terms.
• 80% - 95% – Common for insured mortgages (e.g., CMHC-backed loans in Canada); may require mortgage insurance.‍
• Over 95% – Generally considered high-risk, often requiring private lending or additional collateral.

Financing mechanism repaid through property taxes for upgrades or additions. Homeowners repay the cost over time as part of their property tax bill, making it an attractive option for projects requiring significant upfront investment. Enables homeowners to finance through property tax assessments.

A CMHC program incentivizing energy-efficient and affordable housing. Ideal for eco-friendly gentle density projects.

Also known as MLI. Insurance protecting lenders for high-ratio mortgages. A high-ratio mortgage is a mortgage loan where the borrower makes a down payment of less than 20% of the property’s purchase price, resulting in a loan-to-value (LTV) ratio exceeding 80%. This type of mortgage requires mortgage default insurance to protect the lender against potential default by the borrower. MLI therefore protects lenders in cases of these high-ratio mortgages, opening/facilitating financing opportunities for homeowners with smaller down payments.

A key financial metric used to assess the profitability of income-generating properties, including ADUs and multiplex conversions. It is calculated as:

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NOI = Total Rental Revenue – Operating Expenses (excluding mortgage payments).

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Lenders use NOI to evaluate loan eligibility for rental properties, as it reflects the property’s ability to generate income and cover expenses.

A hybrid financing option where part of the loan must be repaid, while the remaining portion is forgiven if the borrower meets specific program criteria. This is commonly seen in affordable housing and energy retrofit programs.

Combines two loans to cover project costs. A strategy that can be used for financing larger ADU or multiplex projects.

The original loan amount borrowed, excluding interest. Helps borrowers understand how much of their financing goes toward the actual project cost for ADUs or multiplexes.

Loans from private individuals or groups, often with flexible terms. Provides options for homeowners who cannot secure traditional financing for ADUs or multiplexes.

Insurance required for loans with less than a 20% down payment. Often necessary for homeowners building ADUs or multiplexes with high LTV ratios.

A financing option that enables homebuyers to incorporate the cost of eligible renovations into their mortgage. This program allows borrowers to finance up to 95% of the property's “as-improved” value for 1- or 2-unit owner-occupied homes, facilitating immediate enhancements upon purchase.

Replacing an existing mortgage with a new one for better terms or additional funds.

Useful for homeowners who want to access equity for ADU or multiplex construction.

A financial product that allows homeowners to fund improvements (like adding ADUs) or repairs to their existing properties. Unlike standard home improvement loans, renovation loans often consider the property's after-renovation value, enabling borrowers to finance substantial projects that enhance the home's functionality and value. 

A traditional loan that must be fully repaid, typically with interest, over a set period. The repayment amount, frequency, and term length vary by lender and loan agreement. This is the most common form of financing for ADUs and multiplex conversions.

A measure of profitability used to evaluate whether an ADU or multiplex will generate enough rental income to justify the cost.

An additional loan secured against home equity. Popular for funding gentle density projects.

A financing option where a lender, government program, or private investor helps cover part of the cost of a home or rental unit in exchange for a share of its future value. This type of financing can lower upfront costs and monthly mortgage payments, making it easier for homeowners to build an ADU, convert a multiplex, or afford a property with rental income potential.

Directly reduces the amount of taxes owed, making it a valuable financial incentive for homeowners and developers. Tax credits differ from grants as they are applied after expenses are incurred and claimed on tax returns.

Available at federal, provincial, and municipal levels, tax credits can help cover costs related to:

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• ADU or multiplex construction.
• Multigenerational housing renovations.
• Sustainable and energy-efficient housing upgrades.

A loan where the interest rate fluctuates based on market conditions.

Offers flexibility but can add risk for those financing gentle density housing projects, depending on market trends.