On January 16, 2017 the BC Government will start to receive applications for its new ‘Homeowner Mortgage and Equity Partnership program’ to “…assist residents of British Columbia who are eligible first-time homebuyers by providing repayable down payment assistance loans”.
“The B.C. HOME Partnership program will meet the buyer’s contribution up to 5% of the home’s purchase price, to a maximum purchase price of $750,000. After five years, buyers can either repay their loan or enter into monthly payments at current interest rates. Loans through the program become due after 25 years – the same length as most mortgages.” Full details can be found at housingaction.gov.bc.ca.
I did some calculations and have a concern about the real value of this program to first-time buyers in the Lower Mainland. For the first 5 years the loan is interest- and payment-free. Then, payments begin after the 5 year grace period. However, I foresee situations where repayment could become a challenge for borrowers, especially those who are already stretching finances to purchase a home.
Here is an example: on a purchase price of $750,000 (the maximum under this program) with $75,000 down (10%), a borrower’s mortgage will start at $691,200 (this includes mandatory CMHC premiums). With a 5 year fixed mortgage at 2.99% and 25 year amortization the payment would be $3,267.53. Additional costs with this purchase would include the Property Transfer Tax of $13,000, legal fees of approx. $1,200, moving fees and perhaps an amount for redecorating. We see a lot of down payment funds coming from borrowers’ RSPs – amounts that also have to be repaid – so for this example I will include an amount of $25,000 from the borrower’s RSP.
In 5 years the mortgage comes up for renewal and the BC Government loan’s grace period is over. The new mortgage balance is $590,686.75. Mortgage rates are expected to increase, so a realistic rate could be 5% at that time. The new monthly mortgage payment would be $3,435.47 (an extra $167.94). ADDITIONALLY, factor in $239.19/month for the BC Government loan and $138.83/month for the RSP repayment. The new monthly payment totals $3,813.50 – an extra $545.97 per month. This is a 17% increase in monthly payments, and there is also the likelihood that maintenance fees would go up, as well as municipal taxes. First time buyers tend to be younger folks, who may have the anticipation of greater earning power as they gain experience in the work force. They may be counting on this to overcome the stress of higher monthly payments, but need to be aware of the financial reality at the other end of this government program when applying for the assistance.
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