06/16/2025
Thinking about a prefab home or secondary suite? Here’s what to consider.
When Chris and Brianne Curry completed the construction of their modular backyard home earlier this year, it was more than just a personal win, it became a real-life example of how Canadian homeowners can take control of housing challenges in their own communities.
Prefab home construction
With a bit of creativity, municipal support, and a willingness to explore new construction methods, they created a fully functional second dwelling right in their backyard.
Prefab housing isn’t just a buzzword anymore, it’s an increasingly realistic solution for people looking to add rental income, support aging parents, or provide affordable housing to loved ones, all without the mess and delays of traditional builds.
Let’s dig into why prefab and modular builds are catching on, what incentives are out there (some up to $90,000), and what you need to know before jumping in.
What is a prefab home and why is it becoming popular?
Prefab or modular homes are built in sections at a factory and assembled on-site. They’re built to last and meet building code standards, just like traditional homes, but they come with unique benefits that make them attractive in today’s housing market.
Key benefits of modular and prefab construction
Faster build times: Units arrive up to 80% complete and are move-in ready within weeks
Lower construction costs: Fewer on-site labour hours, less waste, and more predictable pricing
Environmentally sustainable: Better insulation, reduced emissions, and smarter material use
More flexible zoning potential: Fits on many residential lots as a detached dwelling or garden suite
Backed by government funding: Cities and provinces are offering meaningful incentives
Prefab housing used to be seen as an “alternative”; today, it’s a frontline solution to Canada’s housing crisis.
Prefab home construction
What incentives are available for building a prefab or ARU?
Here’s where things get exciting. More and more municipalities are offering serious financial incentives to homeowners willing to build an Additional Residential Unit (ARU), especially when the goal is to increase affordable rental stock.
In London, Ontario, for example, homeowners can access up to $90,000 in funding to build a detached rental unit like a garden suite or laneway home.
How London’s secondary suite funding works
$45,000 interest-free loan – Repayable over 9 years after a one-year grace period
Up to $45,000 in forgivable loan – Provided you rent the unit at or below CMHC’s average market rent for 10 years
This isn’t just for developers; regular homeowners can tap into this funding to build income-generating units or help house family members affordably.
Other cities offering prefab and ARU incentives
City of Toronto – Up to $50,000 in forgivable loans under the Laneway and Garden Suite Initiative
City of St. Catharines – Offers up to $80,000 in grants tied to affordability
Region of Peel – Offers up to $30,000 in forgivable loans via the My Home Second Unit Renovation Program
City of Ottawa – Provides zoning and planning support for garden suites
Each municipality has its own rules, but typically the requirements include:
Long-term rental (not short-term rentals like Airbnb)
Rent at or below market rates
Compliance with local building codes
Proof of proper insurance coverage
A real-world example: the Currys’ modular backyard home
Chris and Brianne Curry partnered with modular builder Axe Living to construct a 750-square-foot backyard unit. It included a bedroom, den, and all modern amenities.
The build process was efficient and straightforward:
Built in Axe’s factory in Thorold, Ontario
Walls, roof, electrical, and insulation completed off-site
Shipped in a container and craned into place over a pre-poured slab
Unit was 80% complete upon arrival
Move-in ready within 3 weeks after setup
How much did it cost?
The total cost came in at just over $300 per square foot, including HST and service hookups. That’s 25–30% cheaper than traditional stick-built quotes. And with city incentives like London’s forgivable loan, the affordability improved even further.
How to finance a prefab build
The Currys used a home equity line of credit (HELOC) to fund their project, giving them flexibility without needing to refinance their entire mortgage.
But that’s just one option. If you’re planning a similar build, here are a few financing routes to consider.
Popular financing options for secondary units
HELOCs – Great for homeowners with available equity and strong credit
CMHC Secondary Suite Refinance Program – Allows you to refinance up to 90% of your home’s value to fund ARUs
Construction loans – Ideal for larger or staged builds with scheduled disbursements
Second mortgages – A solid alternative if you want to keep your first mortgage untouched
Speak to a mortgage advisor who understands ARUs and modular housing to explore your best financing path.
What about insurance for prefab homes?
Here’s one area where you need to do some legwork. The Currys ran into trouble when their existing group insurer refused coverage for their second unit. They had to switch insurers, and their premiums rose by about 40%.
Not all insurers understand modular or secondary units yet, so it’s crucial to:
Get quotes early
Ask specifically about ARUs or modular units
Confirm replacement cost coverage for both the primary and secondary dwellings
Assume nothing, call your provider and get clarity upfront.
What happens if you sell your property before the forgivable loan matures?
This is an important question, especially if you’re building the unit with resale flexibility in mind.
In cities like London, Ont., early indications suggest the loan agreement may be portable to a new owner. That means the buyer would need to continue renting the unit at affordable rates, or repay a portion of the original funding.
It’s something to keep in mind when planning your long-term exit strategy.
Prefab homes are a great solution for families, too
This isn’t just about rental income or affordability; modular ARUs can help families stay close and support loved ones who may need accessible housing.
Whether it’s an aging parent, adult child, or family member with disabilities, having a fully independent backyard suite can make a world of difference.
The bigger benefits for families and the system
Supports aging in place in accessible, dignified living spaces
Keeps families close while maintaining independence
Reduces reliance on emergency services and long-term care facilities
Improves caregiver quality of life and housing affordability
Programs like London’s $45,000 forgivable loan make these goals more achievable for average homeowners.
The bottom line: prefab homes are finally getting their moment
We’re at a tipping point. Between the affordability crisis, supply delays, and a groundswell of municipal and federal support, modular construction is gaining serious momentum.
If you’ve got backyard space and even a little curiosity, now is the time to start exploring what’s possible.
My advice if you’re considering a prefab or ARU build
Call your municipality – Ask about zoning, permitting, and incentives
Review your financing options – A mortgage broker can help you compare HELOCs, second mortgages, and CMHC-backed refinance programs
Get your insurance sorted early – Not all insurers treat ARUs equally
Keep good records – You’ll need to prove affordability and timelines to maintain loan eligibility
Prefab housing isn’t a fringe idea anymore; it’s a practical, scalable housing solution that works for homeowners, renters, and communities alike.
It’s quickly proving itself as a scalable, sustainable way to boost housing supply, and not just for developers. Homeowners like Chris and Brianne are a perfect example of how regular people can lead the way.
Canadian Mortgage Trends recently published an article on whether modular homes are a cheaper and faster solution for affordable housing. You can expect to read more on this topic in the months to come.
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