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Financing for multi-unit (5+ unit) residential buildings comes in two varieties:
- CMHC Insured
- Non-CMHC Insured
People with healthy down payments frequently ask why they’d ever want to pay the CMHC premium if they can simply get a conventional mortgage.
Let’s take a $500,000 loan at 75% LTV, for example, on a 5-unit building. CMHC’s premium is 2.25% for a 25-year amortization. That’s $11,250—not exactly chicken feed.
But here’s the thing. Lenders consider multi-unit financing to be much safer when it’s insured. That means there’s less of a risk premium and borrowers get better rates on CMHC-backed deals. “There is a 200 basis point difference between that and a conventional loan,” First National’s, Jeremy Wedgebury, told BrokerNews.ca.
What many don’t realize is that this 2% rate differential translates into big dollars. On that same $500,000 mortgage, a 2% lower 5-year rate would save almost $34,000 after accounting for the $11,250 premium and CMHC’s $750 application fee. Moreover, the property cash flows better because the payment is 16% lower.
In sum, with multi-unit apartments, “pay to save” is often a good motto.
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More information on CMHC-insured multi-unit financing can be found in CMHC’s Multi-Unit Reference.