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Are rising costs and debt keeping you up at night?

The Spaull Brothers’ team looks for solutions to lower your monthly mortgage payment

Spaull Brothers

What options are available for homeowners whose mortgage payments are consuming a record share of their income? Local Ottawa Realtors, Michael and Christopher Spaull of the Spaull Brother’s Team, sat down with Ottawa Mortgage Broker, Andrew Thake from Mortgage Intelligence, to discuss the current market and strategies to bring costs down and free up  homeowners’ income in 2023. 

Homebuyers taking on larger loan sizes during previous low interest rate environments coupled with the gradual rise in interest rates over the past year, have led homeowners to dedicate a record share of their income to paying down their mortgage. According to a report released by TD Economics in December ’22, debt service ratio went from 13.3 per cent of disposable income in the first quarter of 2022, to 14 per cent in the third quarter and is expected to continue to rise and peak in the second half of 2023 (Note: disposable income is your income after taxes). With the Bank of Canada once again raising their key interest rate this past December to 4.25 per cent, household debt payments are expected to continue to rise as mortgages and loan payments are renewed at current market rates.  With costs going up all around us, how can we leverage our largest asset to help relieve debt and free up disposable income?

A legal Secondary Dwelling Unit (SDU) may be an option you could consider. What is a Legal Secondary Dwelling Unit? An SDU is a self-contained rental apartment within a home, which includes its own kitchen and bathroom facilities, and is used as a residential premises. This secondary unit can be located in any part of the house (typically in the basement), requires a separate access on the ground floor, and can’t be more than 40 per cent of the gross floor area of the principal dwelling if located on any floor (if located in basement, no size restriction applies). 

The pressures on the rental market and the ambitious immigration targets set for the coming years lead us to believe that SDUs have the potential to generate positive and consistent cash flows for homeowners, while also helping to increase rental housing supply. To consider the actualities of converting your existing home to include an SDU, it’s critical to get a good understanding of the costs involved, building code requirements, zoning restrictions, and ensure the property itself is conducive to such a retrofit. 

As a first step, you should contact the city’s building department to confirm zoning requirements that apply to your property, which would determine whether SDUs are permitted in your neighborhood, and include requirements around exits and entrances, parking, servicing, and unit size. You can visit the City of Ottawa’s Building and Renovation page to learn more.

Before any retrofit work can begin, you would require a building permit, and in order to obtain this, you would be required to submit an outline of your proposed plan for your SDU, including room sizes, window locations, structural elements and other details. This plan would then be reviewed to ensure adherence to Ontario Building Code rules and regulations. Once the review is completed and your plan is approved, you will be issued your building permit and you can begin construction. 

The cost of retrofitting a home to create a legal SDU can vary widely depending on what work needs to be done to meet Building Code requirements, proposed size of the second unit, and level of finishes selected. There are various costs to consider, including design fees, building permit fees, and construction retrofit costs that may include changes to existing walls, adding or enlarging windows, fireproofing, plumbing, electrical, as well as heating and ventilation work. Consult with a certified contractor to get a better understanding of costs and construction timelines. 

At this point you may be thinking, this sounds fantastic, but how do I get financing to undertake such a retrofit to my existing home? We turn to seasoned Ottawa Mortgage Broker, Andrew Thake, to provide a potential option: 

“The refinance plus improvements option allows a borrower to potentially borrow money based on the future, renovated value of their home. Typically, when refinancing, you can borrow up to 80 per cent of the current, appraised value of the home. Depending on the current value of the home and outstanding mortgage balance, this may not provide one with enough funds for the renovation. Especially if looking to do a major renovation.

Let’s look at a few examples. If your house is worth $700,000 and you have a $500,000 mortgage outstanding, based on traditional refinance guidelines, you could borrow an additional $60,000. With the refinance plus improvements, let’s say after the renovation is complete your house is worth $800,000, you could borrow an additional $140,000.

The best place to start is to reach out to a mortgage broker and let them know you are interested in the refinance plus improvements option. They will complete an application with you to first establish if you qualify for bowering the additional funds. If you qualify, from there they can give you direction on the documentation needed to complete the mortgage.” – Andrew Thake

In summary, one can see that by no means is adding a legal SDU a small task, however, if successfully executed, there are some very compelling benefits that stand to be gained. These include financial peace of mind from creating an extra income stream, flexibility to have extended family stay under one roof while still maintaining privacy, and finally, helping to address rental housing shortage issues in the city. 

If you are looking to purchase a home with the potential of adding an SDU, it’s imperative that you work with an experienced Realtor who understands the city’s zoning and building code requirements, and the types of properties that are best suited for this type of retrofit. Christopher and Michael Spaull are licensed Realtors with Digi Brokerage and have over 12 years of combined experience serving the Ottawa market. If you have any questions or are interested in learning more about finding and creating a cash flowing property through an SDU, we would be happy to help. Please email us at to connect.