A rental suite can help you pay off your mortgage but it could also turn into a nightmare if you become heavily dependent on that rent money and you have a mortgage on a house that you really can’t afford.

The rental suite option became more and more popular with the recent increases in house prices while mortgage rates remained at historic lows, combined with a large demand for accommodation below the $ 1,000 mark, especially among students going to university or young people starting out in the labor market.

By  renting out a basement suite to a university student, you can charge enough rent so that after expenses, you can put some extra money towards your mortgage. The result is that you will pay off your mortgage in less years and in the process, save a large chunk in interest.

When you start number crunching to see if this makes financial sense, be aware that Canadian banks have toughened their standards for financing houses with a rental suite.

“Banks used to do a rent reduction, so that if you qualified to carry $1800 a month, and the tenant was carrying $500 and it was a legal unit, then they would take that amount off that you had qualified,” explained Diane Speer, of ReMax in Toronto.

“Or they would take some of the income and then discount, like if you’re getting $13,000 a year from a unit, they might add that into your income or take a percentage thereof. That’s constantly changing, too, the way they’re looking at it.”

“If it’s an illegal suite, you won’t get any break from the bank.”

And that brings up the issue of zoning: many rental suits in homes can be illegal, meaning the municipality hasn’t zoned a particular area for rental housing.

“But most neighbours will turn a blind eye because it’s been a way of living for so long a while and affordable housing is available in the neighbourhood. The only time I’ve really seen issues with them is somebody moved in who has three cars or somebody moved in who is an issue.”

Having decided that you really don’t mind sharing your house with a complete stranger, you will want to take extra care when holding auditions for your apartment and adopt more than a passing familiarity with provincial landlord-tenant legislation.

“A lot of people are so excited to get a tenant and get someone to pay that they’re not doing a credit check or not making sure on the application that the apartment is being rented to one person and not a family of six,” said Speer.

Speer observed that some of her clients will get in touch with the student housing office at local community colleges.

She has also done the landlord routine and said you just have to be smart about it.

“We were just always really cognizant of keeping the rent at an amount where we would get lots of applicants so that we could choose someone who we thought would be good, one person, a professional maybe who traveled, who wasn’t around,” said Speer,

“I think that if you don’t have standards there or do any kind of qualification or screening, it could be a nightmare and I’ve seen a lot of people go through it.”

Read more at:
http://ca.news.finance.yahoo.com

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