“Lenders like the security of a person living in a home because it’s the best possible security,” explains Butler. “Lenders are confident that if someone is living in the home full-time, then there is a really good chance that they’ll want to keep a roof over their head, and that means they’ll make their mortgage payments. It’s why ‘owner-occupied’ is often part of the mortgage contract.”
In fact, mortgage lenders aren’t fazed at all if you rent out a portion of your home to make extra money—and they don’t care if you make this money through a leased tenant, via short-term rentals or by boarding a foreign-exchange student.
“As long as you keep living there, the bank has no interest in what you do,” says Butler. (However, insurance companies do care if you use your home to earn extra cash, so you’ll need to keep them informed. For details, read here.)
What if you don’t live in the property you rent out?
Let’s say you move out of your principal residence, but continue to use it for short-term rentals while you continue to pay down the mortgage. Technically, you need to notify your lender—and, currently, no bank or residential mortgage lender in Canada will offer a mortgage on a property used solely for short-term rentals. So you would need to apply for a commercial mortgage, which is significantly more expensive (more on that below).
However, there’s no active enforcement of this…yet.
“Airbnb and the short-term rental phenomenon is fairly new [in Canada],” says Butler. He estimates that the short-term rental market only began to radically expand in the last 18 to 24 months. There hasn’t been enough time for lenders to implement any meaningful policies regarding the use of a property for short-term rentals—but that doesn’t mean policy changes aren’t coming.
“Unless a property is sold, all mortgages renew,” explains Butler. In other words, for now, the mortgage on your Airbnb property is likely safe as long as you continue to own it. However, Butler says, “some lenders may choose to start implementing a review of properties upon renewal. A simple search can show whether or not a property has been rented out on a short-term basis, [and] as soon as a lender finds that your property is being used as a short-term rental, they can choose not to renew your mortgage.”
At this point, the owner has two choices: