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By Paula Gasparro

As an investment, a multi-unit property, such as an apartment building, can help build wealth much faster than other asset classes; however, an apartment building also requires more outlay upfront.  With Canada Mortgage and Housing Corporation’s (CMHC) Mortgage Loan Insurance for Multi-Unit Residential Properties, purchasers can reap the benefits of an earlier closing on multi-unit buildings, while maximizing their return on investment.

CMHC’s Mortgage Loan Insurance for multi-unit buildings allows investors to purchase a property with a lower down payment – as little as 15 per cent for buildings with five or more units, including rental buildings and condominium construction, as well as student residences, licensed care facilities and nursing homes.  Along with a lower down payment, borrowers can enjoy competitive interest rates and easier loan renewals.  CMHC is Canada’s only provider of Mortgage Loan Insurance for Multi-Unit Residential Properties, making it available for construction, purchasing and refinancing of multi-unit investment properties.
 
CMHC’s trusted loan insurance products reduce risk for approved lenders; borrowers can obtain mortgage funding at much lower interest rates than would otherwise be required for conventional mortgage financing, and get increased lending limits of up to 85 per cent of the multi-unit property’s value.

In addition to added security, CMHC offers flexible options to help lenders tailor financing to the borrower’s particular needs.  Flexible repayment terms are available, including extended amortizations, and fixed or floating interest rates. There is also an option for rolling application fees and insurance premiums into the mortgage loan.  The fees and premiums pay for themselves – generally they are substantially offset by the savings from lower interest rates. There are even enhanced underwriting flexibilities available in support of affordable housing and energy-efficiency initiatives.

When it comes time for renewal, the insurance is transferable between CMHC-approved lenders, and follows the mortgage for the remaining amortized period, making it easier to renew the mortgage upon maturity.

How can a CMHC-insured loan help you to maximize your return on investment?
Here’s one example:

Thomas considered purchasing an eight-unit apartment building with a market value of $525,000; it provided a rental income of $56,000 and had operating expenses of $17,000 (for a net operating income of $39,000). With a 25 per cent down payment of $131,250, Thomas could get a conventional uninsured loan of $393,750, at a rate of 5.25 per cent.  With a CMHC-insured loan, Thomas would pay an application fee of $150 per unit, but enjoy a lower interest rate of 4.5 per cent, and obtain a loan of $467,531, with a 15 per cent down payment of only $78,750.  Amortized over 25 years, Thomas would see a return on investment of 10.1 per cent with a CMHC-insured loan versus 8.3 per cent for an uninsured loan.  With capital repayment factored in, Thomas’s return on investment would jump to 23.3 per cent for a CMHC-insured loan versus 14.3 per cent for an uninsured loan.

By allowing Thomas to borrow at a lower rate rather and providing him with a lower down payment, a CMHC-insured mortgage loan would help him maximize his return on investment.  The increased lending limit of a CMHC-insured mortgage enhances his return on equity invested.  His initial investment would be lower, the interest savings would offset the cost of setting up the mortgage, and he would see greater investment results, sooner.

For information on how to take advantage of CMHC’s Mortgage Loan Insurance, contact
Paula Gasparro, Manager, Business Development, Multi-Unit Mortgage Insurance at 416-250-2731 or via e-mail at pgasparr@cmhc.ca or visit  www. cmhc.ca/mult-unit.