I took out a second mortgage and built a laneway house when my spouse died. I expect to die in debt — and don’t regret it

After the passing of her spouse, a Toronto woman faced a significant decision regarding her living situation. Instead of selling her family home, she chose to take out a second mortgage to finance the construction of a laneway house on her property. This decision allowed her to move into the newly built laneway house and rent out the main residence, providing her with a steady income stream.

The construction of the laneway house was completed in May 2023. Despite encountering delays due to city regulations and increased costs, she remained committed to her plan. The new home reflects her personal passions and offers a simpler lifestyle, while the rental income from the main house helps cover her expenses.

Building a laneway house involves navigating various regulations and financing options. Homeowners can use personal savings, construction loans, or lines of credit to fund such projects. Some lenders offer loans specifically designed for laneway house construction with flexible terms and conditions. For instance, Equitable Bank provides a laneway house mortgage available in the Greater Toronto Area, Greater Vancouver Area, and Calgary. This mortgage considers the estimated rental income from the laneway house when calculating debt service ratios, making it easier for homeowners to qualify.

In January 2025, the Canadian government introduced a new insured mortgage refinancing product to support homeowners looking to add secondary suites, such as laneway houses. This program allows eligible homeowners to access up to 90% of their property's value, including the value added by the secondary suite. The maximum property value limit is set at $2 million, with an amortization period of up to 30 years. The goal is to make it easier for people to build secondary suites, thereby increasing housing options.

While taking on additional debt later in life can be daunting, some individuals find that the benefits outweigh the risks. For example, one homeowner took out a $100,000 loan against their $400,000 home to access needed cash. They acknowledged that the loan would not affect the property's value, but their heirs would be responsible for settling the remaining debt after their passing. This approach allowed them to access home equity while planning for future contingencies.

In the case of the Toronto woman, despite the expectation of remaining in debt, she does not regret her decision. The choice to build a laneway house has provided her with a comfortable living space that suits her needs and a reliable source of income from renting out the main house. This strategy has enabled her to maintain her lifestyle and financial independence following her spouse's death.