Following the Second World War, in response to an increased need for both single family homes and rental housing, the government of Canada became involved in the housing market, primarily through what is now known as the Canadian Mortgage and Housing Corporation (CMHC). The government guaranteed mortgage loans for more than 75% of the property’s value and also provided a guaranteed return for investors building rental units. Currently, the national government partners with provincial and municipal governments to provide affordable housing in many parts of Canada. These units are usually either rentals or are formed as a co-operative (group ownership and management).
Whether in Tuktoyaktuk or Ottawa mortgages for more than 25% of the home’s value will require a mandatory insurance through CMHC. The borrower pays a percentage of home’s value as insurance (it is rolled into the mortgage payments) and this insurance program is used to guarantee that the lender’s money is always protected, even if the borrower defaults during a time when the property has, for some reason, lost value. This government program is designed to encourage home ownership, not real estate investment, so it can only be applied to a home which will be the borrower’s primary residence.
The CMHC has fairly conservative standards (32%) on income/debt ratio. This is one reason why longer amortization periods have become more common. The lower monthly payment on a mortgage amortized over 40 years instead of 25 years may be the difference in getting CMHC approval on mortgages. A consultation with an Ottawa mortgage broker or banker will give a prospective home owner a better picture of where he or she stands in regards to CMHC insurance requirements.
If you have additional questions or would like to see if you can prequalify for a mortgage in Ottawa you can use our Ottawa Mortgages Directory to find a mortgage broker or mortgage bank specialist to help you.