CMHC is at it again – or is that co-ops that are at it again.
Just this week, the board for yet another co-operative complex – Village Canadien Housing Co-op in St. Vital, Man. – went public in its fight to break a 50-year mortgage with the Crown corporation and avoid a $5.5 million penalty.
Brokers can understand their motivation: the co-op is paying 13.25 interest on that CMHC loan, reports the Winnipeg Free Press.
Back in 1983 when the co-op signed the mortgage, 13.25 was considered a pretty good deal since an average five-year fixed was going for 13.23.
Times, to say the very least, have changed and today the co-op wants to refinance in order to leverage its equity but also to take advantage of the current, much lower rates. It also wants to use $2.5 million for renovations, according to Linda Ferguson, president of the co-op.
CMHC says the pre-payment conditions of it contract with Village Canadien stipulates that the co-op has to pay a penalty of $5.5 million (the total interest due on the mortgage when it matures in 2028). Ironically, the current remaining balance on the mortgage is only $4.5 million.
Village Canadien’s predicament is not that unique. For instance in Ontario, the 78-unit Mondragon co-operative housing complex in Brampton, was asked to fork out a $140,000 in prepayment penalty to break out of its CMHC mortgage.
It too was in need of a $2.3 million renovation and retrofit and had a minimal balance owing on its principal.
Here’s a question for the most seasoned and creative brokers among you. What would you do for this client?