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A primer on CMHC’s new MLI Select mortgage insurance

GUEST SUBMISSION: CMHC has announced the launch of the new MLI Select mortgage insurance product...

GUEST SUBMISSION: CMHC has announced the launch of the new MLI Select mortgage insurance product to facilitate construction and term financing for apartment buildings. Applications under this new program will be accepted starting March 7.

The new product replaces an existing product known as MLI Flex, which launched in 2017.

Let’s take a look at this new program and how it compares to the outgoing offering.

The new tiered points system provides different financing options based on the strength of the social outcomes for a property. The point-scoring system results in three tiers of benefits, with points being achieved for:

– the proportion of units at the property having rents at or below 30 per cent of median income for the municipality;

– the energy-efficiency improvement over current performance (for existing buildings) or over National Building Code requirements (for new construction);

– the proportion of units that are accessible and adaptable/universal design.

New leverage, amortization benefits

Based on the points achieved for these categories, the benefits can include leverage of up to 95 per cent and amortizations of up to 50 years.

Key benefits compared to the previous program include both increased leverage and amortizations, as well as reduced CMHC insurance premiums.

– Leverage: For existing properties, maximum leverage has gone up to 95 per cent loan-to-value from 85 per cent loan-to-value. For new construction projects, leverage remains at 95 per cent loan-to-cost.

– Amortizations: The maximum amortization allowed has been increased to 50 years from 40 years.

– CMHC insurance premium reductions: Insurance premiums have generally gone down, especially for properties with strong social outcomes.

The new affordability criteria

One of the major changes compared to the previous program is that affordability is now being evaluated based on how unit rents compare to the median renter income for the municipality. The key metric being evaluated is the proportion of units having rental rates at 30 per cent or less of the ‘median renter income’ for the municipality.

The previous metric for construction was the rental revenue being at least 10 per cent below appraiser-derived market rental revenue for the property, or the project being approved under any government affordable housing program.

This impacts certain centres more than others, with deeper rent discounts being required for centres such as Toronto, Vancouver and Victoria.

Energy efficiency

As outlined earlier, energy efficiency and accessibility criteria have now been introduced to this program in addition to affordability criteria.

It is notable, however, that the new point scoring system will allow for a property to qualify for the program based on energy efficiency alone – without the need for any affordable units.

This illustrates the weight the new program puts on energy efficiency.

Accessibility and other criteria

On the other hand, while accessibility alone isn’t enough to qualify for the program, it can supplement affordability and/or energy efficiency to help a property qualify for a higher tier of benefits.

Certain elements of the previous program have remained the same:

– Affordability requirements need to be maintained for a minimum of 10 years.

– Rents can be increased annually by the lower of inflation or rent control (as applicable).

– Interest rates for this program are typically below market.

MLI Select in closing

CMHC has indicated applications submitted under the outgoing MLI Flex program will continue to be accepted until March 6. Starting March 7, the new MLI Select program will come into effect for all applications.

Some of the finer details around this program have yet to be released and the program may still be subject to change as feedback is received and details are ironed out.

If you are interested in this program, we would recommend speaking with a CMHC-approved correspondent or lender who understands the program and can guide you through the process.

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