Premier Christy Clark and Minister Responsible for Housing, Rich Coleman announced on the 15th of December that the B.C. Home Owner Mortgage and Equity Partnership program will initiate a bold, innovative new program for helping first time home buyers afford the homes they desire.
We’ve reached out to our friend Angela Calla, expert mortgage broker and leader of the Angela Calla Mortgage Team, for an analysis of this new program, for an explanation of the requirements and for a prediction on the outcome. Her insights below are likely to bring clarity to the issue.
What’s the Home Partnership Loan program all about?
Let’s look at the original statement from the Premier and Minister Rich Coleman: “The B.C. Home Owner Mortgage and Equity Partnership program contributes to the amount first-time home buyers have already saved for their down payment, providing up to $37,500, or up to 5% of the purchase price, with a 25-year loan that is interest-free and payment-free for the first five years. Through the program, the Province is investing about $703 million over the next three years to help an estimated 42,000 B.C. households enter the market for the first time.”
This program not only helps first-time home buyers enter the market, but it can also help them save on interest by providing buyers with a larger down payment than they already have. The Province will contribute towards the buyers’ contributions up to five per cent of the home purchase price, meaning first-time buyers can exceed the minimum down payment required by the Canada Mortgage and Housing Corporation.
For example, a home valued at $750,000 requires a minimum down payment of $50,000. With contributions from this program, a first-time home buyer can put $90,000 down and, assuming a three per cent interest rate, will save approximately $5,200 in interest during the first five years. For more examples, click here.
How does the B.C. Home Owner Mortgage and Equity Partnership program work?
During the first five years, no monthly interest or principal payments are required as long as the home remains the home buyer’s principal residence. After the first five years, home buyers begin making monthly payments at current interest rates. Home buyers will repay the loan over the remaining 20 years, but may make extra payments or repay it in full at any time without penalty. The loan must be repaid in full when the home is sold or transferred to another owner.
To be eligible, buyers must be preapproved for an insured high-ratio first mortgage (mortgage down payment is less than 20% of the home price). On completion of the sale, program funds will be advanced and the loan will be registered as a second mortgage on the property’s title.
Applications will be accepted starting January 16, 2017. This will be a three-year program with loans advanced from February 15, 2017 until March 31, 2020.
Am I an eligible home buyer?
All individuals with a registered interest on title must reside in the home and:
- Be a first-time home buyer
- Have been a Canadian citizen or permanent resident for at least five years
- Have resided in B.C. for at least 12 months
- Have a combined gross income of $150,000 or less
- Have saved at least half of the minimum down payment they will require
- Must be pre-approved for the first mortgage before applying
The first mortgage must be high-ratio insured from an NHA approved lender for more than 80% of the purchase price.
Which properties are eligible?
Any legal, self-contained, mortgageable residence located in British Columbia is eligible for the Home Partnership Loan.
- Must be used as a principal residence for the first 5 years
- Rental properties and seasonal or recreational properties are not eligible
- The purchase price cannot exceed $750,000
Home Partnership Loans breakdown
- Up to 25-year term, registered as a second mortgage
- No interest or principal payments for the first 5 years
- Monthly principal and interest payments begin in year 6, amortized over remaining 20 years
- Interest rate for years 6 to 10 set near first mortgage rate at time mortgage is registered
- Interest rate reset to near first mortgage rate at years 10, 15, and 20
- Homeowner may repay in full or part at any time without penalty.
When is the loan due and when is it payable in full?
- The home ceases to be the primary residence in the first 5 years
- There is a default on the first mortgage
- In case of sale of home or change of ownership
- If any other default on the Home Partnership second mortgage occurs
What’s the bottom line on Home Partnership Loans?
This is a bold and innovative step to help potential new buyers to meet the greatest hurdle of first-time homeownership—the down payment. The Federal Government’s new mortgage regulations released in October hit first-time home buyers hard, so this program will be welcome relief for B.C. residents.
The B.C. government estimates that it will make more than 42,000 new loans over the three-year life of this program, amounting to $703 million in new funding available for qualified first-time home buyers to come up with their down payments. This is particularly important for B.C., which has the highest home prices in Canada.
What’s there to be concerned about?
Although this program is available, some homeowners may choose not to take it, as it is a loan that does have to be paid back with the above stipulations, so essentially it’s a borrowed down payment. We will not know what that rate of interest will be at the time of repayment.
With it being registered as a second mortgage, no other loans can be registered against the property without approval.
This program does not address the supply issue and, if anything, will drive prices higher.
At this time, it’s not clear where the Government actually got these funds to loan out.
Angela Calla has been a licensed mortgage broker for 12 years – since she was 22 years old. She has been with Dominion Lending Centres since its inception in January 2006. Residing in Port Moody, British Columbia, Angela is a regular expert guest on several news stations, television shows, radio programs and local and national publications.
She was the AMP of the year in 2009, and has consistently been one of DLC and the industry’s top performers since 2006.
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