Understanding CMHC Insurance for Multi-Residential Properties
The down payment requirement on multi-residential properties (5 units or more) is typically 25-30% of the appraised value. One method to reduce the down payment requirement is by getting a CMHC insurance. Under a CMHC mortgage you can pay as little as 15% down on a multi-unit investment property, and the insurance premium at a loan to value (LTV) of 85% is 4.5% of the loan amount. CMHC insurance premiums decrease if the LTV is less than 85%
So for example, if you got a mortgage of $500,000 based on an LTV of 85% then your loan amount including insurance would be $522,500 [$500,000 x (1+4.5%)]. Therefore, in theory your actual loan to value including the premium could be more than the 85% if the appraisal value and the purchase price are close. See table below:
That said CMHC is generally conservative and often appraises for less than the purchase price. This is especially the case in rising markets as appraisals are based on historical information. Therefore, even if you obtain a CMHC loan based on an LTV of 85% your loan to purchase price will often be less than 85 percent, and hence you should plan to have at least 20-25% down. The CMHC insurance premium will to some extent be offset by lower interest rates from lenders.
Three other important facts regarding CMHC loans on multi-unit properties: 1) In order to qualify for this type of loan the borrower must have a net worth of at least 25% of the loan amount and no less than $100,000. 2) In the case of a mixed use building non-residential components should not be greater than 20% of the gross floor area nor 20% of the total lending value. 3) For energy efficient properties a premium refund of 10% could be available for eligible properties.