Section A: Making a CSBF Loan
On or before the day of the first disbursement of the CSBF loan funds, the borrower and the lender must sign a document setting out the principal amount of the loan, the rate of interest, the repayment terms, the frequency of the payments and the day on which the first payment of principal and interest is due. Regs ss. 10(1)
Such a document can be in the form of a promissory note, a loan agreement, a bank contract or any other document that the lender registers to secure the repayment of the loan. Lenders may use their own loan related documentation (e.g. application form, loan document, etc.).
- Maximum term: The maximum term of a CSBF loan is 10 years, with the expiry of the term being no more than 10 years from the date of the first scheduled payment of principal and interest, as specified in the initial loan document (i.e., the promissory note or equivalent document). The repayment of the loan can be amortized over a period longer than 10 years (for example, a mortgage on a real property with a term of 5 years and an amortization of 25 years). However, in such a case, the balance of the loan at the end of the 10 year from the date of the first scheduled payment must be converted to a conventional loan. Regs ss.6(b)
- Instalments: The repayment terms for a CSBF loan must be such that, at the minimum, there is one payment of principal and interest scheduled to be made each year, with the first instalment of principal and interest scheduled no later than one year from the date of the first disbursement of the loan funds. Regs ss.10(2)
- Payments: Payments may be adapted to a borrower's needs (i.e. blended, seasonal or escalating).
The rate of interest can be either floating or fixed. The Regulations provide for a maximum rate of interest; lenders may charge interest rates lower than the maximums below.
- The maximum floating rate is the lender's prime rate in effect on each day of the CSBF loan term plus 3% (including the 1.25% annual administration fee). Regs ss.12(a)
- The maximum fixed rate is the lender's posted single family residential mortgage rate plus 3% (including the 1.25% annual administration fee). Use the rate for a mortgage term equivalent to the CSBF loan term. If the CSBF term is longer than 5 years, and there is no rate for that loan term, use the 5-year posted single family residential mortgage rate. If the CSBF loan is made for an irregular term (e.g., 30 months), lenders should follow their usual procedures to establish the residential interest rate for loans with irregular terms.
The fixed rate is set at either the day:
- on which the first disbursement of the funds is made for the CSBF loan;
- on which the CSBF loan document is signed;
- on which the loan is renewed or the loan term is amended.
Note: At any time during the repayment period of a CSBF loan, the lender and borrower may agree to convert the interest rate, from floating to fixed or vice versa, or to prepay the loan. Any charges related to such conversions must be similar to that in a conventional loan of the same amount. See Section B, Items 4 and 5 of these Guidelines.
The lender cannot, at any time, request from the borrower a fee, service charge, or charge of any kind other than:
- The registration fee
- A charge for preparing and registering the security document: Such amount must be equal to or less than the amount typically charged for a similar conventional loan. The borrower should have the option of contracting directly for preparation and registration of the required security document. If this charge is expressed as a percentage of the CSBF loan, it cannot be combined in the loan's interest rate unless the calculation for such charge is shown clearly and separately in the loan document.
- Premiums for life and/or disability insurance: If life and/or disability insurance are required as a loan condition, the lender must offer the borrower the option of purchasing the lender's insurance policy or another provider's policy. If the borrower chooses the lender's policy and opts to finance the insurance, the premium can be expressed as fixed payments or as a percentage of the CSBF loan. If the insurance premium is expressed as a percentage of the CSBF loan, it cannot be combined in the loan's interest rate unless the calculation for such premium is shown clearly and separately in the loan document.
- A charge that is similar to that in a conventional loan of the same amount for the following:
- the conversion of a fixed interest rate loan to a floating interest rate loan;
- the conversion of a floating rate interest loan to fixed rate interest loan; and
- prepayment of all or part of a loan.
Note: The cost of the prepaid insurance and charges for the taking of security cannot be financed by a CSBF loan or, in any way, added to the principal amount of the loan to increase the loan amount.
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