What is a Canadian Mortgage Bond (CMB)?

August 6, 2008

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Canadian Mortgage Bonds (CMBs) are issued by the Canada Housing Trust (CHT), a part of Canada Mortgage and Housing Corporation’s (CMHC). Canada Mortgage Bonds Program was introduced in June of 2001.

CMBs are fully guaranteed by CMHC (a crown corporation of the Government of Canada).Hence, the guarantee  has the backing by the government of Canada. The benefit of CMBs to investors is in receiving higher interest rates than government bonds.

Canada Mortgage Bonds provide investors with an attractive fixed income investment opportunity featuring: semi-annual interest payments; repayment of principal at maturity and; a full timely payment guarantee by CMHC on behalf of the Government of Canada.

Canada Mortgage Bond – an internationally recognized program provides Canadians with both an attractive and secure investment opportunity. CMB is an important source of funds, and enhances the efficiency of the secondary mortgage market. This helps in lowering the cost of mortgage financing in Canada.

How CMB’s Work?

Canada Housing Trust sells CMBs to investors. CHT then uses these proceeds to purchase prime mortgages from “approved” lenders. These lenders then take these proceeds and lend them out as new mortgages all over again.

CMHC pioneered the development of the Canadian secondary mortgage market with National Housing Act (NHA) Mortgage Backed Securities in 1987. Since the introduction of the Canada Mortgage Bonds Program in June of 2001, CMHC has provided its timely payment guarantee for over $24 billion of bonds issued by the Canada Housing Trust.

Reference: CMHC’s CMB Program.

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