CMHC Portability: Good News for Borrrowers Who Are Moving

If you’re about to relocate, the portability feature that CMHC offers allows you to take your CMHC Mortgage Loan Insurance from the home you live in now to your new home – and you can end up saving some money by eliminating (or at least reducing) the premium on the new loan for that home.

How does it work?

  • If you have an increase in the loan amount, amortization period, and/or the loan-to-value ratio (LTV), then you still owe a new premium.
  • If the terms of your new mortgage will be the same or less than your existing one, you won’t owe a new premium.
  • This is available for all mortgage loans insured by CHMC that cover residential properties with 1-4 units that were insured by CMHC originally.
  • If you do owe a new premium, a premium credit is often available if you meet some conditions.

What products are eligible?

All mortgage loans insured by CMHC for 1-4 unit properties are eligible. The borrowers for the new loan have to be the same ones that were on the application that was approved originally. What are the portability options? You can choose straight portability, in which the existing LTV ratio, amortization remaining and mortgage balance either remain the same or go down. You won’t owe a new premium is this is the case. You can also choose portability-with-increase, which means one or more of those metrics goes up. Then you’ll pay the lesser of the Premium on Increase to Loan Amount or the Premium on Total Loan Amount less applicable Premium Credit. How much equity do you need? You need a 5% down payment for the purchase price or lending value if it less than $500,000. It’s more than $500,000, then you need a 10% down payment. You can’t use this on a property with a purchase price or as-improved property value over $1,000,000. If you’re using portability-with-increase, your LTV can’t go over 90%. However, CMHC might consider an LTV ratio as high as 95% if that ratio is equal to or less than the original LTV ratio on the first note.

How much are the premiums?

LTV Ratio Premium on Total Loan Amount Premium on Increase to Loan Amount for Portability Surcharge (Blended Amortization)
1-65% 0.60% 0.60% 0.60%
65.01-75% 0.75% 2.60% 0.60%
75.01-80% 1.25% 3.15% 0.60%
80.01-85% 1.80% 4.00% 0.60%
85.01-90% 2.40% 4.90% 0.60%
90.01-95% (Traditional Down Payment 3.60% 5.65% 0.60%
90.01-95% (Non-Traditional Down Payment) 3.85% N/A 0.60%

What’s a traditional down payment?

This includes sources such as applicant savings, funds that you borrow against proven assets, sweat equity (which must be less than half of your equity), unencumbered land, proceeds from selling other real estate, a non-repayable gift from someone in your immediate family, a government equity grant or RRSP withdrawal. Non-traditional sources include arm’s length sources, such as total sweat equity, gifts or borrowed funds. What premium credits are available? If you can pay the premium on your current loan within six months, you get a 100% credit on your new premium (if you had to pay a new premium). If you can pay that existing premium within a year, you get a 50% credit; if you can do it within two years, you get a 25% credit. What are the benefits of this portability program? Your costs will go down. If you use CMHC Mortgage Loan Insurance multiple times, you can reduce or even eliminate your mortgage loan insurance premium when you finance the purchase of a new home. You will have access to the most competitive interest rates, since you’ll get access to financing insured by CMHC. You can access these services anywhere in Canada.

CMHC Second Home

Effective May 30, 2014, Canada Mortgage and Housing Corporation (CMHC) will no longer insure mortgages for second homes, and those who have an insured mortgages will not be able to step in as a co-borrower on a CMHC-insured mortgage. Mortgage insurance is a requirement for banks giving mortgages to home purchasers making down payments under 20 percent, and these alterations can have major effects on the sales of homes. This is part of the first major changes in CMHC rules since 2012, when then-Finance Minister Jim Flaherty capped amortization for insured loans at 25 years, a drop from 30, also causing home sales to drop significantly.

New Second Home Purchase Obstacles; Courtesy of CMHC

Here is how the new rule works: as long as you have verification of income, you can still gain access to financing insured by CMHC, as long as you don’t already have a loan insured by the CMHC in place. You can still act as a co-borrower on a different application, as long as your existing mortgage is not ensured by CMHC. This also means that the borrower or co-borrower has to occupy the property that the CMHC-insured loan secures at some point. The only exception happens when a relative of the borrower lives in the property rent-free. Lenders have to confirm that the owner is the occupant and keep that confirmation in their records.

This rule does not affect guarantors. However, lenders have to follow guarantor policies. The income of the guarantor or covenantor may not go toward satisfying the borrower qualification requirements of CMHC unless the guarantor or covenantor lives in the home and is the common-law partner or spouse of the borrower.

CMHC Creates Second Home Obstacles

If you are borrowing to purchase a home in one area and are transferred to another area, and your first home has a CMHC-insured mortgage, even if you rent out the first home, you may not use a CMHC-insured mortgage to purchase a home in the area to which you are transferred. In cases where one house is headed to closing, the borrower may go ahead and enter a second mortgage insured by CMHC provided that there is a firm sale agreement on the existing property. There are some other exceptional situations that will be considered on an individual basis. For homes that are under construction or for some other reason will not go to closing until after May 30, 2014, as long as the application for mortgage loan insurance has come into CMHC by May 30, 2014, that application will be evaluated on the basis of the existing rules, even if closing comes after that deadline. For people looking to add a rental property to their real estate holdings, even if they have a CMHC-insured mortgage on their owner-occupied property, they have access to CMHC’s Rental Loan insurance. When the borrower is not going to occupy the property (or a relative), or that property has at least five units, it is considered a rental property rather than an owner-occupier property.

In the time since Joe Oliver took over as Canada’s Finance Minister, he has indicated that he wants to have a lesser role in the real estate market. Some took this as a sign that the regulatory environment of real estate would begin to ease. However, since 2012 the mandate from the federal government has been that CMHC contribute positively to the overall stability of Canada’s financial system. This means that it had to stop selling mortgage insurance to borrowers that allows them to assume too much debt, bringing new risks to the real estate market. Because the Canadian government guarantees the products that CMHC sells, the overall purpose of this rule is to decrease the exposure that taxpayers have to risk in the real estate market. At the same time that this rule goes into effect, self-employed borrowers will now have to show third party verification of their income to qualify for mortgage insurance.

CMHC has two competitors in the private sector, Canada Guaranty and Genworth MI Canada. Their standards have already been less restrictive than those of CMHC. Amansad Financial has access to a variety of other financing options in addition to CMHC and the two primary private sector competitors. To get answers to questions about your own individual situation, give one of our mortgage professionals a call or email. We can connect you to financing for a first or second home, or for a rental property.

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