Mortgages

Depending on the percentage of the purchase price which was placed as a down payment by the buyer, there are different options for kinds of mortgages available. Which option is used may have significant legal ramifications for the buyer.

Conventional Mortgage

A conventional mortgage is available when a buyer provides at least 20% of the purchase price as a down payment. Since the buyer has already provided significant equity in the property, insurance is not required, as the lender carries less risk of default.

In the event of foreclosure, the lender will possess and sell the property. Often, a property will sell for less than the amount owing on the mortgage and the lender be left with a shortfall. If there is a shortfall on a conventional mortgage, the lender is unable to sue the former owner to recover the amount of the shortfall and will have to absorb the loss.

Canada Mortgage and Housing Corporation Insured Mortgage

When a buyer purchases a property with a mortgage whose value is greater than 80% of the purchase price of the property, the kind of mortgages available are called high-ratio mortgages or CMHC insured mortgages. This means that the percentage of down payment is low, which increases the risk for the lender, so insurance is required to protect the lender from default.

If the property costs $500,000 or less, the minimum down payment is 5% of the purchase price. If the property costs more than $500,000 but less than $1,000,000, the minimum down payment is %5 of the first $500,000 and 10% of the remainder. CMHC mortgage insurance is not available for properties costing more than $1,000,000.

In the event of a shortfall upon the foreclosure sale of a CMHC insured mortgage, the CMHC insurance will cover the amount of the shortfall to the lender and pay them out. CMHC will then have a subrogated claim against the former owner, meaning that CMHC can sue the former owner for the amount of the shortfall. As a result, a buyer with a CMHC insured mortgage will still be liable after a foreclosure sale, while a buyer with a conventional mortgage will not be.