Feds increase rental funding by 50 per cent
October 6, 2023
The federal government announced a significant increase in the annual limit for Canada Mortgage Bonds from $40 billion to $60 billion—unlocking $20 billion in new financing to facilitate the construction of an additional 30,000 rental apartments per year.
This initiative is part of a comprehensive strategy to address surging housing costs and meet growing demand for rental housing, according to a release.
The additional financing is designated for multi-unit rental projects, including apartment buildings, student housing and senior residences.
There are two Canada Mortgage and Housing Corporation (CMHC) products rental housing developers are considering.
One is the Rental Construction Financing Initiative (RCFI) loan, which provides low-cost funding during development of rental apartments. The minimum loan is $1,000,000, and a maximum of up to 100 per cent of Loan to Cost. And, the interest rate is fixed at the time of the first construction draw.
"We are currently seeing RCFI loans being priced around 10-year prime minus 0.25 per cent,” said James Paleologos, a mortgage broker at Realtech Capital.
The other product is the MLI Select loan. It is a new a multi-unit mortgage loan insurance product from CMHC. Designed for both new construction and existing properties, the program has a focus on energy efficiency, affordability and accessibility, including restrictions on rental rates.
Unlike RCFI loans where the interest rate is fixed, MLI Select loans are typically variable, so the rate will move with prime during the term of the loan. Pricing on MLI Select construction loans will depend on the strength of the borrower and size of the loan. Pricing typically is in the range of prime minus 0.25 per cent to 0.75 per cent.
“With prime at 7.20 per cent currently, this equates to lending rates of from 6.45 per cent to 6.95 per cent,” noted multi-family specialist David Goodman of Goodman Commercial Inc., in Vancouver.