[daveto]

What happens when it comes time to renew a CMHC insured mortgage on a property where the owner now has negative equity?

As a numbers example let's say someone bought at $300k on a 0/40 mortgage, and at the time of renewal in 5 yrs the property is now appraised at $250k.

I've heard two different answers to this question. Some say that the bank doesn't care about renewing based upon the purchase price $300k because they are fully insured by the CMHC.

But others say that the bank will only renew the mortgage based upon the new $250k value.

Can someone provide a factual answer? (rather than opinions?).
thx

 

[carturo15]

If the mortage is going to be renewed by the original financial institution, they will renew the outstanding mortgage amount without considering the market value of the property, they are still fully insured so they do not care and actually they do not have many options. Now, you won't get any other bank to assume that mortage so it has to be renewed by the same financial institution.

 

[daveto]

Interesting. Ok thanks.

I guess that means that an owner in this situation wouldn't have a lot of leverage in getting the best mortgage rate at the time of renewal.