It was just days before Canadians rang in 2017 that the new BC Home Partnership Program was introduced. Designed to lend a hand to first-time homebuyers eager to enter the housing market, the jury is still out on just how firm a helping hand it will be. In fact, the truth about BC’s new home loan program when it initially came out was that there was a significant lack of information about its finer points.
WHAT THE NEW LOAN PROGRAM IS
In place on January 16th, 2017, the program is, essentially, an interest-free loan from the BC government. For the first 5 years. After that grace period, the loan is registered as a second mortgage on the property. This also means that should you wish to sell the property, both your mortgage and the BC home partnership would be due. Hopefully the value of your home has gone up, otherwise you could be out of pocket if you put the minimum 2.5% down and had the BC home partnership match your down payment. At the end of the term, no doubt you would have built some equity. The question would be what if you are selling your home mid-term? Would the equity still be enough to cover both loans, even in a market with slight price adjustment?
INSURANCE & LIABILITIES
Because it is an unconventional form of down payment, the mortgage insurance premiums will be higher. A good number of our lenders are now on board with this program. However, it is very important for borrowers to remember two important points. A.) This is a loan, and B.) The lender will will calculate your repayment amount and include it in your liabilities.
While I don’t want to speculate on whether things will change in the future, I can only speak about the lenders that have updated us until now. And what they’re saying is this: They will use the higher of the benchmark rate (currently 4.64%), or the contract rate amortized over a period of 20 years.
PUTTING THE NEW LOAN PROGRAM ON PAPER
Sometimes you need to see the numbers written in black and white for them to sink in. So without further ado, here is a concrete example.
Depending on your total down payment and the insurance premium, the lender will consider about $65 per every $10,000 you are borrowing with this program. And this holds true despite the fact you are not making any payments during the first 5 years. If you borrow the full $37,500 offered by the program (maxing out the loan), the lender will recalculate a repayment amount of approximately $250 per month. As a result, this could reduce the actual mortgage amount you can borrow by over $50,000.
THE IDEAL CANDIDATE FOR THE HOME LOAN PROGRAM
When you work out the hard numbers it’s clear that not everyone would benefit from the new home loan program. Not only that, who really qualifies for it? In a city known for it’s low wages and tremendous cost of living, the ideal candidate might be as hard to find as the down payment money itself.
In looking at the program, those who will qualify for the program will have to have the following:
- Relatively high income
- Little if any debt
- Purchasing below their approved limit
- Good credit
Now I don’t know about you, but this hardly describes most Vancouverites I know.
After the 5 years grace period, you will have to make payments on the loan in addition to your mortgage and any other debt that you may have. Make sure you calculate those payments and see if you can afford them now. Don’t count on a promotion that may never happen.
WHAT TO DO IF YOU’RE INTERESTED
If you are interested in the new home loan program, give yourself ample time to get organized. It will take time for the program’s kinks to be smoothed out, and the more patience you have the better. In addition to this I would suggest making sure you’ve been pre-approved, and discuss your options with a mortgage broker you trust. You want to ensure that you will benefit from the program, not the other way around. With insurance premiums hiking up March 17th, calculating the actual cost will be even more important.
Lastly, avoid making subject-free offers based on the assumption that your application will be approved. If you are banking on the other half of your down payment being provided by the program to meet minimum 5% required, you need to make sure that your BC home partnership program is approved first. Don’t assume and make an offer that you can not take back.