On January 16, the provincial government launched the BC Home Owner Mortgage and Equity Partnership Program, a measure meant to help first time buyers. These buyers need be able to put at least 2.5% of their own money towards a down payment (or more, if the purchase price is more than $500,000) and the government will match that to bring the down payment up to the required minimum. The matching funds provided by the government are payment and interest free for five years. Since the launch of the program, BC Housing has received 607 applications and approved 449.
This new program was a hot topic at the Mortgage Brokers Association of BC’s annual conference, which took place this week. Brokers learned about how the program could play out in specific scenarios, and were also filled in on some of the program’s nuances.
Let’s consider a few ways this could play out for someone hoping to buy on Bowen Island:
First of all, we should note that there is currently only one listing on Bowen Island that qualifies as the government will not assist with down payments on any house that costs more than $750,000. The one house with a price-tag lower than that on Bowen is listed at $679,000.
So, in scenario one, Mr. and Mrs. Eaglecliff have managed to save half of the necessary down payment (3.16% of the purchase price - $21,450). Provided they qualify, they can apply for the program to cover the other 3.16% and they get their minimum down payment. As they have 6.32% down, and are taking advantage of the BC HOME Partnership program, they are subject to mortgage loan insurance premiums of 3.85% ($26,141.50), which will be added to the mortgage loan and spread over the amortization. This effectively means is the loan to value of this transaction is now 100.69%, where more is owed than it's worth.
In the next example, Mr. and Mr. Fairweather have saved up 10% of the purchase price ($67,900) and are apparently bidding on the same house. They would currently have to add 2.4% in mortgage insurance premiums, but they get wind of the new BC HOME Partnership program and choose to apply. The extra 5% puts them in to the next premium bracket and reduces the rate to 1.8%, saving the couple $4,074. After 5 years, the BC Home Partnership loan will start to accrue interest. If the clients can pay off that portion within the first five years, they will save roughly $8,000 in interest fees. If they carry the mortgage until the end of the term, they will save about $1,000. (All of these calculations are based on 3% first mortgage rates, and 3.2% BC Home Partnership rates.)
As you can see, there are many things to consider when weighing the benefits of this program. A mortgage broker or lender is a required first stop as anyone applying for this must be pre-approved for mortgage financing. However, you are responsible for dealing with BC Housing on the paperwork.
The main goal for BC Housing is to help BC homeowners get into homes – our country’s economic stability is improved by higher levels of home ownership, as is the quality of people’s lives. This program is only open for three years, and the projected aim is to help 45,000 BC residents become new homeowners. How much will this program impact Bowen? Well that depends on what happens with our housing
