Energy-Efficient Properties Eligible for Premium Discount
Amassing the 25 per cent down payment that most commercial mortgage products require for commercial properties can be difficult. But with the Canada Mortgage and Housing Corporation’s multi-unit (5+ units) insurance coverage, a commercial investor can attain up to 85 per cent financing toward their commercial purchase. This includes financing and coverage for retirement dwellings, licensed care facilities, condominium construction and student residences, new or existing, Canada-wide.
As with residential mortgage insurance, CMHC’s commercial mortgage insurance gives lenders assurance that they will be covered should the borrower default on their mortgage, and opens up increased financing possibilities for potential commercial property buyers. Commercial mortgage insurance coverage means:
- Flexible advantage: Purchase existing, build new or refinance commercial property with up to 85 per cent financing.
- Lower interest rates: CMHC-covered loans may enjoy lower rates through every stage of the commercial development – from construction of the building to renewal time.
- Reduced risk: The entire amortization of the commercial loan is covered, meaning no need to re-qualify when the renewal date approaches or mortgage term matures.
- Portability: CMHC commercial mortgage coverage is transferrable on products offered by CHMC-approved lenders.
According to the CMHC, the ability to acquire rates 0.75 per cent lower than what is available on conventional, uninsured commercial mortgage products will recoup premium and application fees over time, significantly, if a certain level of rent income is generated. In fact, they propose returns on the commercial investment could amount to 25 to 50 per cent more than they would on a non-CMHC insured commercial loan drawn toward a commercial purchase.
Commercial Mortgage Refinance with CMHC
There are numerous reasons as to why you, or your company, may make the decision to refinance your commercial mortgage product. It may be to attain a lower interest rate, access equity with which to expand or make renovations, pay down or consolidate high-interest debt, or to finance additional property. A CMHC Multi-Unti Refinance can improve cash flow, placing no restrictions on how you wish to use the funds, even at a 75 per cent loan to value ratio. Application fees will apply.
The CMHC Multi-Unit Refinance is available to improve cash flow, and could be of benefit to such an end even at a 75 per cent loan to value ratio.
Fees and Guidlines
Security and benefit come with a price, though one that could certainly be made up for. The CMHC premium on the purchase of a multi-unit (5+) property runs around 4.5 per cent on 85 per cent financed products, down to 1.75 per cent on 65 per cent financing, with an additional application fee of $150 per property unit. Having an insured CMHC multi-unit mortgage, however, can mean securing lower interest rates, which could save you thousands in the long-term. Plus the additional 10 per cent financing you could attain toward your commercial venture leaves funds available for start-up costs, retrofitting or renovations that might have been dependent on a high-interest credit product.
Amortization can be extended to as long as 40 years, but premium surcharges will kick in after 25.
To qualify for multi-unit coverage, the borrower’s net worth must be equal to a minimum of $100,000 and at least 25 per cent of the loan amount. Corporate borrowers will require additional guarantees of two per cent of the loan amount for every percentage point, over 60 per cent, financed. Restrictions during construction phases, and until rent income is stabilized, will also apply.
Encouragement for Energy Efficiency
Just as the CMHC offers up to a 10 per cent rebate on premiums for the purchase of energy efficient homes, or on homes where energy efficient renovations are made, so too may it on the purchase of energy efficient multi-units. Purchasing green, or renovating to make green changes, will also result in the lowering of monthly heating bills.
To be considered energy efficient, new buildings must prove to be at least 25 per cent more energy efficient than requirements by the Model National Energy Code for Buildings stipulate. For existing buildings to qualify, they must up energy efficiency by at least 10 per cent or meet NRCan’s ecoENERGY Program requirements.
Submission of the building’s design proposal or energy retrofit plan and a post-commissioning or retrofit report, completed by a third party to verify that the energy efficient improvements were indeed made, will also be required.
Purchasing that commercial multi-unit investment – retirement home, care facility, condominium complex or student residence – through your business, partnership, or individually, may be more in your financial capabilities than you thought, so long as the rent income they will generate exceeds your mortgage and insurance premium payments.