CMHC Financing vs Conventional Financing: What Are The Differences

Philip Shearcroft

12/2/20234 min read

With affordability taking centre stage in Canada's economic landscape, the Canada Mortgage and Housing Corporation (CMHC) has gained significant attention for its role in providing financing options that promote affordable rentals. As housing costs continue to rise, many individuals are looking for accessible pathways to homeownership or investment in commercial rentals. This blog explores the various benefits of CMHC financing, which has become a popular choice for those seeking affordable options. From lower down payments and interest rates to easier qualification criteria and flexible rental property support, CMHC financing offers viable solutions to address the affordability challenges faced by Canadians today. In this blog, we will delve into the advantages of CMHC financing compared to conventional options, shedding light on the opportunities it presents for both potential homeowners and commercial property investors:

Lower down payment:

CMHC: CMHC-insured mortgages allow homebuyers to purchase a property with as little as a 5% down payment. This makes homeownership more accessible for individuals with limited savings.
Conventional: Conventional financing for commercial rentals may require a higher down payment, typically around 20-30% of the property value. This can make it more challenging for individuals with limited savings to obtain financing for commercial rental properties.

Lower interest rates:

CMHC: CMHC-insured mortgages often come with lower interest rates compared to conventional mortgages. These reduced rates can help lower monthly mortgage payments and make homeownership more affordable.
Conventional: Conventional financing options for commercial rentals may have higher interest rates compared to CMHC-insured mortgages. This can result in higher monthly mortgage payments for commercial property owners.

Easier qualification:

CMHC: CMHC-insured mortgages have specific qualification criteria that are often easier to meet compared to conventional mortgages. This allows individuals with lower incomes or less established credit histories to qualify for financing.
Conventional: Conventional financing options for commercial rentals may have stricter qualification requirements, including higher income requirements and more extensive credit history checks. This can make it more difficult for individuals with limited income or credit history to qualify for conventional financing.

Longer amortization periods:

CMHC: CMHC-insured mortgages may offer longer amortization periods, such as 30 years. This extended repayment timeline can result in lower monthly mortgage payments, improving affordability for homeowners.
Conventional: Conventional financing options for commercial rentals may have shorter amortization periods, typically ranging from 15 to 25 years. This can result in higher monthly mortgage payments compared to CMHC-insured mortgages.

Flexibility for rental properties:

CMHC: CMHC provides financing options specifically tailored for rental properties, allowing homeowners to generate additional income by renting out their properties.
Conventional: Conventional financing options may also be available for commercial rentals, but the terms and conditions may not be as flexible as those offered by CMHC. This can limit the income-generating potential for commercial property owners.

Predictable payments:

CMHC: CMHC-insured mortgages often feature fixed interest rates, resulting in predictable mortgage payments. This stability makes it easier for homeowners to budget their expenses effectively.
Conventional: Conventional financing options may offer both fixed and variable interest rates. Variable interest rates can result in fluctuating mortgage payments, making it more challenging for commercial property owners to predict and plan their expenses.

Support for new home construction:

CMHC: CMHC offers financing options specifically designed for new construction homes, encouraging the development of affordable rental properties and expanding housing options.
Conventional: Conventional financing options for commercial rentals may also support new home construction, but the terms and conditions may vary and could potentially be less favourable than those provided by CMHC.

Protection for lenders:

CMHC: By providing mortgage insurance, CMHC protects lenders in the event of homeowner default. This assurance allows lenders to provide financing with reduced risk, promoting increased availability of mortgage options.
Conventional: Conventional financing options for commercial rentals do not typically come with mortgage insurance, which means lenders could be at a higher risk of financial loss in the event of default. This can make lenders more cautious and potentially result in stricter lending criteria or higher interest rates.

Improved credit scores:

CMHC: Making on-time mortgage payments on a CMHC-insured loan helps establish a positive credit history, leading to improved credit scores and enhanced borrowing opportunities in the future.
Conventional: Similar to CMHC-insured mortgages, making timely payments on conventional financing options for commercial rentals can also positively impact credit scores. This can provide commercial property owners with improved borrowing options for future investments.

Opportunity to build equity:

CMHC: Through CMHC financing, homeowners have the chance to build equity over time as property values increase and mortgage payments are made. This promotes long-term financial stability.
Conventional: Conventional financing options for commercial rentals also allow property owners to build equity as property values appreciate and mortgage payments are made. The opportunity to build equity exists in both CMHC and conventional financing options.

It's important to note that while CMHC financing offers unique benefits for affordable rentals, conventional financing options for commercial rentals have their own advantages and may be better suited for certain individuals or specific investment strategies. It's recommended to consult with a financial advisor or mortgage professional to determine the best financing option for your specific situation.

If you are interested in learning more about affordable rentals in Alberta and how CMHC financing can assist you in achieving your investment goals, we invite you to reach out for a detailed discussion by clicking here.

Our team is ready to provide insights, guidance, and customized solutions to enable you to capitalize on the opportunities within the affordable rental market.