Last night, CityNews ran a story about how to convert a basement into a separate apartment for rental purposes. I've always been intrigued with basement apartments as I felt that they would be a nice option for extended family to use as guest suite. I applaud them for their recognition that it may be best to speak to an accountant or financial adviser about possible tax credits since it is always best to get advice from qualified professionals.

However, they did not mention speaking to legal professionals. Other than the permits, which they mention, there is one other issue that they do not address: the mortgage. While they mention that renting out the basement apartment may be a viable means to pay the mortgage, they did not mention that many banks and mortgage lenders prohibit any portion of the property from being rented out.

For example, in the standard RBC disclosure statement, clause M states that owner/borrower may not rent the property, or any part of it, without the prior consent of the bank. If you are negotiating a new mortgage, you will need to disclose the fact that part of the property may be rented out. Renting out the premises may affect your eligibility, interest rate, or principal loan. If you have an existing mortgage, you will need to obtain consent from the bank as without it, the bank can find you in default and call for repayment of the entire loan.

While the bank does not routinely send people to check to ensure that the property is not being rented out, before proceeding, you may wish to review the terms of your mortgage before undertaking such a large task.

UPDATE: Looks like CityNews has updated their article and linked to this post. Maybe someone will be reading!

        

 

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