Take care NOW to maintain your access to CMHC-insured funds
As a result of CMHC’s mortgage insurance changes announced on May 28, rental housing providers need to take new steps if they want to maintain maximum access to CMHC insured funds.
The new rule is that CMHC insurance can no longer be used to insure funds which include equity take out from rental housing, except for the first insured financing for a newly constructed rental building.
Generally, insured funds must be used for permitted purposes, which include the purchase of rental housing, capital repairs to rental housing, and construction of new rental housing. In each case, the rental housing must be of two units or more, and located in Canada. A few other uses can be approved on a case by case basis.
Key implications for CAPEX
Capital expenditure financing needs to be planned and managed more carefully than before the rule change. You can no longer pay for capex with an equity injection, and then take that equity out at a later time with insured funds.
If you want to include funding for capex in a CMHC-insured upward re-financing (or new loan), you have three main choices: 1) do the capex first, and then borrow the money to pay for it; 2) take out the money and hold it to pay for capex over the next three years, or 3) borrow uninsured funds (conventional funds) and then replace that borrowing with insured funds on renewal.
Key implication for purchases
Also, during a purchase, you cannot inject equity (to close the deal, or to do renovations for example), and later take out the equity. Either bridge financing or conventional financings needs to be used if the funds in question are ever to be replaced with insured funds.