The Canadian Mortgage Brokers Association announced today that they will be supporting the introduction of a new down payment assistance program from the BC government named the “BC Home Owner Mortgage and Equity Partnership Program”. In other words, this is a first time home buyer’s loan.
Under this new program, the BC government will match the down payment funds of eligible first time buyers up to $37,500 with a 25-year term second mortgage. No payments are required to be made and interest will not accrue until year six of the term.
BC Home Owner Mortgage and Equity Partnership Program Details
First time home buyers will be able to obtain matching repayable loans for up to 5% of the purchase price, up to a maximum of $37,500, which will be registered as a second mortgage for a term of up to 25 years.
No payments of interest or principal owing under the second mortgage are required for the first 5 years.
Principal and interest payments begin in year six, and will be amortized over the remaining 20 years.
The interest rate for years 6 through 10 will be set at the time of mortgage registration in year 1 at a rate of half a per cent over current first mortgage rates. Interest rates will be reset at years 10, 15 and 20.
Borrowers may repay the second mortgage in full or in part at any time without penalty.
Applications will be accepted beginning January 16, 2017, for loans advanced from February 15 to March 31, 2020.
To qualify, all applicants who will be registered on title must:
Have lived in BC for at least one year
Have a combined gross income of less than $150,000
Live in the home
Be a first-time home-buyer
Be a Canadian citizen or permanent resident for 5 years
Have saved at least half of the down payment they will require, and
Be pre-approved for a 1st mortgage before applying.
In addition, the property must be:
A legal, self-contained residence (not for rental or recreational) located in BC
Used as the home=buyer’s principal residence for the first 5 years, and
Below a purchase price of $750,000.
For example, a first-time buyer of a $400,000 property who requires a downpayment of 5% ($20,000), with could use $10,000 of their own funds and $10,000 from the BC Home Partnership Program.
The structure of the financing would be as follows (assuming a current rate of 2.90%):
$400,000 Purchase Price
$20,000 Down Payment
$380,000 Base Mortgage Required
$14,630 Non Traditional CMHC Premium (3.85%)
$394,630 Net 1st Mortgage
$10,000.00 Net 2nd Mortgage
This is a considerable announcement as traditionally lenders and insurers alike have usually required at least 5% down payment from first time buyers from their own resources or in the form of a gift from a family member. With the government stepping in, it will be interesting to see how the lenders will handle this new program.
This government assistance is likely to promote activity in the real estate market for homes below the $750,000 purchase price mark, which could lead to an increase in home values within this price point.
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