Prepayment Flexibility for Co-operative and Non-Profit Housing Providers
HAMILTON, ONTARIO, June 11, 2016 — The Honourable Jean-Yves Duclos, Minister of Families, Children and Social Development and Minister responsible for CMHC, announced today that the Government is providing $150 million over four years for prepayment flexibility for eligible social housing providers.
Eligible co-operative and non-profit housing providers with long-term, non-renewable CMHC mortgages will now be able to pre-pay their mortgages without penalty. Upon prepayment, housing providers will be able to access financing from the private market at current interest rates, which will lower mortgage expenses and help to keep rents affordable.
Lower interest costs will place housing providers in a stronger financial position with the flexibility to strengthen their capacity to deliver affordable housing through lower mortgage expenses, provide the opportunity to finance repairs with private capital, and offer flexibility to transition to more self-sustaining operating models.
To maintain affordability for low-income households, CMHC will continue to provide rent supplements to federally-administered housing providers on a time-limited basis. This will allow funding to flow to those in greatest need and give housing providers time to transition toward strong financial footing through improved access to private funding.
In addition to waiving prepayment penalties, housing providers that received an upfront capital contribution that is earned over the life of the loan will also be forgiven at the time of payout for the unearned portion of the contribution.
CMHC will contact its provincial and territorial partners as well as housing providers directly to provide additional details on the application process and program submission requirements.
“Waiving prepayment penalties aligns with Budget 2016 priorities to preserve affordability for low income households living in existing social housing. The Government of Canada firmly believes that co-operative and non-profit housing are an important part of the housing continuum, and we are taking measures to ensure that the affordable housing sector remains strong and stable.”
— The Honourable Jean-Yves Duclos, Minister of Families, Children and Social Development
“Elimination of prepayment penalties will allow housing co-operatives to reduce unreasonably burdensome interest payments and also undertake much needed renovation and capital renewal. CHF Canada applauds the federal government for fulfilling this important commitment.”
— Anne Davidson, President of CHF Canada
- The Government provides support to 546,400 social housing units across Canada. Many of these units are older and in need of repair and modernization.
- Through the Social Infrastructure Fund, $3.4 billion is being invested over the next two years, including new funding of $2.3 billion, to give Canadians greater access to affordable housing.
- Budget 2016 includes meaningful short-term investments that will preserve affordability for low-income households in social housing as operating agreements expire:
- $30 million for subsidies for CMHC-administered social housing;
- $504 million to double the Investment in Affordable Housing (IAH) delivered through provinces and territories; and
- $574 million to renovate or retrofit existing social housing.
- CMHC will begin consultations with all levels of government, Indigenous and other communities, and key stakeholders in the coming months to develop innovative approaches to affordable housing and improve housing outcomes for Canadians through a National Housing Strategy.
- Canada Mortgage and Housing Corporation (CMHC) has been helping Canadians meet their housing needs for more than 70 years. As Canada’s authority on housing, we contribute to the stability of the housing market and financial system, provide support for Canadians in housing need, and offer unbiased housing research and advice to Canadian governments, consumers and the housing industry. Prudent risk management, strong corporate governance and transparency are cornerstones of our operations.
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Director of Communications
Office of the Hon. Jean-Yves Duclos, P.C., M.P.
Minister of Families, Children and Social Development
Canada Mortgage and Housing Corporation
Between the 1940s and early 1980s, CMHC made long-term, non-renewable loans to non-profit and co-operative social housing programs for new affordable housing. Providers entered into operating agreements to provide affordable housing for the life of the loan.
The loans were made at preferential interest rates that were locked in for the duration of the loan (generally 40 to 50 years). At the time the loans were issued, interest rates were high and rising, and locking in rates allowed housing providers with greater certainty over their operating costs. The average interest rate on remaining CMHC portfolio of loans is approximately 8%, with a number of loans with interest rates over 13%.
While interest rates were preferential when the loans were made, interest rates have since dropped, leaving many of the loans in the portfolio with interest rates much higher than current market rate.
In 2013, recognizing the challenges facing housing providers, the federal government began to allow cooperatives and non-profit housing providers the opportunity to prepay their mortgages with a reduced penalty, consistent with private lending institutions. Given the remaining years on their mortgages and high interest rates, this still resulted in high prepayment costs for providers, and few took advantage of this change in policy.
In 2015, the Government announced $150 million over four years, starting in 2016-2017, to allow co-operative housing and non-profit social housing providers to prepay long-term, non-renewable mortgages held with CMHC without penalty.
CMHC will initiate a call out for applications and prioritize projects that demonstrate the best results prior to approving the waiving of the prepayment penalty. CMHC will be contacting their Provincial partners, clients and stakeholders with further details shortly. Housing providers under provincial or territorial administration will need to obtain approval from the Province or Territory prior to submitting their application to CMHC.