Direct answer
Almost all of it at 95% leverage. On the standard example, a $2.2 million purchase financed with a 5% deposit at 4.00%, the 50-year amortization produces a debt coverage ratio of about 1.16 times. At 40 years the same loan covers 1.07 times, below CMHC's minimum. At 25 years it covers 0.84 times. The amortization is not a feature of the program; it is the program.
Key facts
- On the standard example, coverage falls from 1.16x at 50 years to 1.07x at 40 years and 0.84x at 25 years.
- Holding 1.10x coverage at 25 years on the same building would require roughly $600,000 of equity, about 27% of the price, instead of the 5% deposit.
- The 50-year amortization is tied to the top MLI Select points tier and to an affordability commitment that runs for a defined period.
The mechanics
Amortization sets the share of each payment that repays principal. Stretching it from 25 to 50 years cuts the annual payment on a given loan by roughly a quarter, because the principal component shrinks while the interest component barely changes. At the leverage MLI Select permits, that reduction is the difference between a building that services its debt and one that does not.
The standard example under each amortization
Take the standard underwrite on this site: purchase price $2,200,000, deposit 5%, insured loan of $2,201,502 including the premium, rate 4.00% with Canadian semi-annual compounding, net operating income $117,052. The table below holds everything constant except amortization.
| Amortization | Annual debt service | Debt coverage ratio | Passes 1.10 minimum |
|---|---|---|---|
| 50 years | $101,321 | 1.16x | Yes |
| 45 years | $105,003 | 1.11x | Yes |
| 40 years | $109,871 | 1.07x | No |
| 35 years | $116,451 | 1.01x | No |
| 30 years | $125,623 | 0.93x | No |
| 25 years | $138,964 | 0.84x | No |
What it costs to fix a shorter amortization
A deal that fails coverage does not disappear; it needs more equity. To hold 1.10 times coverage at a 40-year amortization, the maximum loan on the same building falls to about $2,132,000, so the buyer contributes roughly $66,000 more than the $110,000 deposit. At 25 years the maximum loan falls to about $1,686,000 and the required equity rises to roughly $600,000, about 27% of the price. The leverage that made the deal attractive is gone.
How the 50 years is earned and kept
The longest amortization sits at the top MLI Select points tier. In the markets we underwrite the points are usually earned through the affordability criterion, which requires a defined share of units to rent at or below a threshold tied to median renter income for a commitment period, typically ten years in the structures we see. The commitment is a covenant. Owners who plan to lift rents above the threshold before the period ends should underwrite the shorter amortization they would then face, or not buy the building.
The underwriting rule
We do not accept a pro forma that only works at 50 years and base-case rents. The standard underwrite reports coverage at each amortization and under rent and rate stress so the buyer can see where the deal actually lives. If the margin above the floor is thinner than a 10% rent decline, the price is wrong.
Questions
Can the amortization be reduced after closing?
The amortization is set in the insured mortgage. Breaching the affordability commitment during the period can expose the borrower to consequences under the certificate of insurance; confirm the specific covenant language in the lender's commitment letter.
Does a 50-year amortization mean I never build equity?
Principal repayment is slower, not absent. On the standard example about $14,000 of principal is repaid in year one, rising each year. Equity growth in these structures comes mostly from rent growth and value, which is why the rent assumptions matter more than the amortization.
Sources
MLI Select: multi-unit mortgage loan insurance,
Canada Mortgage and Housing Corporation (CMHC)
Standard underwrite model (this site),
Daniel Kim & Associates
Canadian bond yields: benchmark 5-year Government of Canada,
Bank of Canada
Canada Mortgage Bonds program,
CMHC
Related pages
Reference material prepared by Daniel Kim & Associates, Sotheby's International Realty Canada. Not a recommendation to buy any property or security. Figures are illustrative and reviewed quarterly; complete independent due diligence with your counsel and accountant.
All reference pages