CMHC is best known as an insurer of existing single family homes, apartments and retirement homes/nursing homes.  However, CMHC also offers to insure construction loans, specifically the following:

1. condominiums for sale
2. freehold properties  for sale (single family home developments, townhouses etc...)
3. apartments/condominiums to be built for rental purposes
4. mixed use property development, where the residential component represents at least 80% of the overall project.

CMHC's level of participation in construction lending varies from market to market.  In western Canada, CMHC is a vary active participant with a market share, according to our sources, in the range of 20.0%.  In Toronto, CMHC has only begun to become more actively involved in underwriting insurance on construction loans.  CMHC will almost certainly be the 'lender' of choice for new rental construction loans, because the traditional lenders will probably be unwilling to underwrite the leasing risk (without asking for considerable fees and interest rates).

We have recently structured two of the largest CMHC-insured construction loans, each being well in excess of $30.0 million.  One of the advantages of using Canadian Mortgage Capital Corp. for construction loans is that we will consider both traditional sources for construction lending (ie. banks, near banks, pension funds) and the CMHC-insured option in order to structure the best deal for you.

ADVANTAGES OF CMHC-INSURED CONSTRUCTION LOANS

The advantages of CMHC-Insured construction loans are as follows:

1. LOWER INTEREST RATE & FEES: the interest rate which can be obtained from a lender on a CMHC-insured deal will be well below the prime rate of interest, resulting in considerable interest savings. The interest rate will normally be .75%-1.5% lower than for conventional financing and the fees will be nominal.
2. HIGHER LOAN AMOUNT: the loan amount may be slightly higher, generally being limited to 75% of the total retail value of the units being sold.
3. LOWER PRESALES LEVEL: the presales level is generally lower than conventional lenders would require.  In the case of the two transaction mentioned above, the presales levels were 50% and 75%/35% in the two phase project.  Unlike some of the conventional lenders, CMHC does not require a presales amount which guarantees full repayment of the authorized loan amount.
4. MORE AGGRESSIVE UNDERWRITING ON NEW RENTAL CONSTRUCTION LOANS: we feel comfortable in saying that CMHC will be the 'lender' of choice on new rental construction loans.  Given the high rental rate assumptions which are required to make these investments viable, we believe that most traditional lenders will not offer this type of financing (at the very least, to all but the most creditworthy clients).

Many of our clients have been very pleased with the ease of negotiations of CMHC-Insured construction loans.  We have one very large client who has always preferred this financing alternative.

CMHC'S FEE STRUCTURE

The fee structure for CMHC-Insured Construction Loans is similar to the insurance premium structure for permanent mortgages.  The fees are outlined below:

CMHC Application Fees: upfront fee of $150 per unit for the first 100 units and a fee of $100/unit for any additional amount.

CMHC Mortgage Insurance Premium: a mortgage insurance premium equal to the following, which is only paid at the time of each draw.  Please note that the 'loan to value' is calculated based on the aggregate proceeds from sale to individual purchasers (and is not based on the project cost).

1. Up to 65.0% Loan to Value:     1.0% per draw
2. Up to 75.0% of Loan to Value: 1.25% per draw

The Mortgage Insurance Premiums are considerably higher for new rental construction loans (which also insures the loan for 35 years for permanent financing).  Please call us for details.

WHY USE CANADIAN MORTGAGE CAPITAL CORP. TO ARRANGE A CONSTRUCTION LOAN FOR YOU?

The senior partners at Canadian Mortgage Capital Inc. have extensive construction lending experience, both in structuring loans with traditional lenders (on a conventional basis) and with CMHC (on an insured basis).  Our mandate with you is to select the most attractive financing option available between the two alternatives. As a 'CMHC Approved Lender', we will negotiate the terms of the construction loan directly with CMHC to ensure that your needs are met.  Only once the final terms are negotiated will we involve a lender in the process.

If you would like to contact us or ask questions about CMHC-INSURED CONSTRUCTION FINANCING, then click here.