CMHC Eliminates Prepayment Penalties For Co-op Housing Complexes

Posted by Alan Zunec on Thursday, February 7th, 2013 at 2:38pm.

The Canadian Mortgage and Housing Corporation has changed its tune. For the first time the Crown agency is doing away with prepayment penalties. No longer will those wanting to break or payoff their mortgage be changed with steep fees for not carrying those mortgages to term.

This particularly benefits those in co-op housing complexes. The Co-operative Housing Federation of Canada was quick to show their appreciation. This past Tuesday their executive director, Nicholas Gazzard, praised CMHC for their change of heart. He noted that this financial change eases the amount of money owed to the Crown, allows affordable housing to remain so and spurs more housing construction and/or renovations, therefore creating more jobs.

Social housing projects already in existence and that are eligible may make prepayments on CMHC closed mortgages. The mortgages must be compatible with those in banks and similar lending firms. Part of that eligibility means that the housing needs major repairs and/or renovations.

Prior to this change, some cooperative housing projects were looking at huge penalties when trying to refinance to provide cash for needed repairs and upgrades. Collectively, these penalties added up to several million dollars.

One example was in Brampton, where a co-op wanted to refinance a low-cost CMHC mortgage, only to find out that the penalty was $140,000. The amount, according to CMHC, was equivalent to the interest lost on the loan, considering that the loan was at the beginning of its five year term. The co-op also was looking at roughly $1.8 million on the principal amount. CMHC defended its decision last October by noting it was in line with market standards and took into account the loan’s preferential interest rate.

Diane Finley, the Human Resources Minister, announced the change of heart and with it CMHC eased the financial burden for these types of situations. Finley noted that lower-income residents, whether they be seniors, families, individuals or the physically challenged, would benefit. First Nations peoples would also be similarly affected. Affordable housing inventory would be improved and the resultant jobs would help to improve the economy.

Gazzard noted that updates/renovations are needed at several dozen housing cooperatives nationwide. This change of heart by CMHC means that these co-ops will finally be brought up to standard. It’s a win-win for both the owners and the residents.

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