Podcast Episode 2: “Mortgage Basics 2/9 – Types of Mortgages.”
This episode of Tales from the Trenches continues the mini series on mortgages with a discussion of conventional mortgages and high ratio (CMHC) mortgages. The legal aspect of how mortgages are secured depends on the loan to value ratio.
B. Basic Principles of Foreclosure
Some general legal principles of foreclosure law are as follows:
i) Conventional Mortgages
A conventional mortgage is described as one where the loan to value ratio (LTV) is 80% or less. The lender takes at least two forms of security. The first is a charge against the land. The second is the borrower’s personal covenant (personal promise) to repay the loan. If the mortgage goes into default, the lender can enforce the mortgage by way of a foreclosure action which may result in the sale of the land. If proceeds of sale are not sufficient to pay off the mortgage loan, the borrower and all of his assets are at risk to repay any deficiency. For example, if the mortgage balance is $300,000.00 at the date of default and the property is sold through the foreclosure process but brings only $280,000, the deficiency is the difference of $20,000.00 (plus costs and accrued interest to the date of sale).
ii) High Ratio Mortgages
The federal Bank Act says that when a bank provides a mortgage loan, the LTV ratio shall not exceed 80% of the value of the property. An exception to this rule is a high ratio mortgage loan made under the federal National Housing Act (NHA). If a lending institution makes a mortgage loan under the NHA, the loan will be insured by either the Canada Mortgage and Housing Corporation (CMHC) or by a private insurer (to date, Genworth Financial Canada is the sole private insurer of high ratio mortgages), with the borrower paying the insurance premium. In all other respects high ratio mortgages are the same as conventional mortgages.
Contact Barry McGuire now. If you’re dealing with mortgages in Alberta, you need an Alberta lawyer.