CMHC recently introduced a series of policy changes affecting mortgage loan insurance for multi-unit residential properties (5+ units). There is a lot of new information to digest, so we want to highlight some of the key changes.
In an effort to be more pragmatic in its approach, CMHC intends that the changes will make rental and affordable housing more accessible to more Canadians. The good news is that much of the policy transformation favours borrowers including:
- More flexibility: CMHC will now entertain alternative factors when determining the need for personal guarantees, including corporate guarantees, equity retention, replacement reserves, collateral security, etc. Previous CMHC policy required personal guarantees for any financing with a loan to value above 75%.
- Standardized guarantee percentage: for existing rental properties, CMHC now requires only 40% guarantee of the outstanding loan amount owing under the mortgage; for construction loans, the guarantee amount is 100% until the borrower achieves stabilized rents, at which time the guarantee decreases to 40% of the outstanding loan amount.
- Non-recourse threshold: the limit for a non-recourse loan has increased to 65% loan to value (up from 60%).
- Permitted non-residential space: the maximum threshold for permitted non-residential space has been increased to 30% (up from 20%).
- Consideration of bulk lease revenue: the revenue garnered as a result of a bulk lease for a portion of the residential units will now be considered, where such arrangement is directly in support of affordable housing, housing in the North, housing for students or housing for vulnerable groups.
- Consideration of furnished suites: furnished suites may now be considered, where the units are intended for long-term occupancy.
- Retirement Homes and Student Housing: CMHC may now consider amortization periods of up to 40 years for these property types.
- Amended for new construction and affordable housing premiums
- Slight changes for existing rental properties with loans between 70 – 75% loan to value.
CMHC has also implemented additional policies for rental achievement requirements for new construction, second mortgage maturity requirements, as well as new policies to simplify its affordable housing requirements.
While the policy changes are positive and have created new potential opportunities for you as a borrower, there are intricacies to dissect and understand. We are here to help you do that. Together, we can determine how the new policies impact your portfolio and future real estate strategies. Please contact your account manager with any questions that you may have.