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Is the BC HOME Partnership Program Worth It?

Posted on January 25, 2017

2017 brought about the start of the new BC Home Ownership Mortgage and Equity Partnership, introduced by the BC Government to help first time homeowners get into the market.

There is a long list of conditions in order to apply, which we’ve gone over here, but today we want to discuss how much help the program will actually be.

Eitan Pinsky over at Pinsky Mortgages has done a fantastic job of deconstructing the program and drafting up three different scenarios that help identify what benefits the program will have for first time buyers.

BC HOME Partnership Program

So does the program work?

The short answer is YES.

The long answer is: YES, the BC HOME Partnership Program (the Program) is worth it in almost all scenarios.

This is a long blog; please don’t hesitate to contact us for any technical questions.

We will be looking at three scenarios where this interest free mortgage loan helps.

Borrowers with less than 5% down payment,

Borrowers with more than 5% but less than 10% down payment, and

Borrowers with 10%+ down payment.

Scenarios 1. and 3. benefit quite a lot through the Program, with the second scenario’s benefit to the client being muted.

NOTE: In all of our scenarios, we have assumed that the borrower can qualify for the Program based on their income. Based on the math, almost all borrowers will qualify for the Program unless they have large debts.

First, it’s important to note a couple items:

1. The loan costs $560 – in registering and in paying BC Housing’s legal fees. This amount is tacked on the loan and does not have to be paid up front.

2. CMHC Rate Premium Table  

Borrower    BC HOME      Total Down     CMHC

< 5%             < 5%             < 10%           3.85%

< 10%          =< 5%             < 15%           3.60%

=> 10%         =< 5%             > 15%           1.80%

NOTE: on March 17, 2017, the CMHC rates will change: 3.85% becomes 4.50%, 3.60% becomes 4.00% and 1.80% becomes 2.80%.

Now that that’s out of the way, let’s go straight to a few scenarios:

Scenario 1: Less than 5% down payment

Let’s say we have a purchase price of $400,000 and our borrower only has $10,000 as their down payment. The down payment here is 2.5% and CMHC requires all borrowers to have at least 5% down payment; this is where the Program comes in handy. A client here would now be able to purchase the property with a matching 2.5% from the Program.

Value               Percent 

Purchase Price        $400,000               100%

Borrower                   $10,000                2.50%

BC HOME                 $10,000                2.50%

Mortgage                 $380,000              95.00%

CMHC Fee                $14,630                3.85%

1st Mortgage           $394,630               98.66%

In Scenario 1, the borrower can purchase a property that they would not normally have been able to purchase.

It’s important to note although this borrower has now purchased his or her property, they are now “underwater.” What this means is that all the mortgages are now more than the value of their home. In this case, we are at 101.3% of value.

1st Mortgage              $394,630               98.66%

2nd Mortgage.            $10,560                  2.64%

Total                        $405,190             101.30%

Scenario 2:  5% but less than 10% down payment

In this scenario, we’re going to assume 5% down payment from the borrower for the same purchase price. In this case, the borrower would NOT NEED the the Program. We’re going to compare not taking the interest free loan vs. taking it below:

No BC HOME           BC HOME

Purchase Price           $400,000                $400,000

Borrower                      $20,000                  $20,000

BC HOME                         $0                        $20,000

Mortgage                    $380,000                $360,000

CMHC Fee                   $13,680                    $12,960

1st Mortgage              $393,680                  $372,960

2nd Mortgage                    $0                        $20,560

Total                         $393,680               $393,520

The comparison above doesn’t tell the full story… It shows that we’re very close in terms of total mortgage amount, however it doesn’t say how much interest a borrower may pay over the next five years. Remember, the loan is interest free!

So let’s make a couple of assumptions: our first mortgages’ payments are based on 25 years amortization and a 2.79% rate.

                            No BC HOME            BC HOME             Difference

1st Mortgage            $393,680                  $372,960                    $20,720

Payment                       $1,821                        $1,725                           $96

The above chart shows that each payment is $96 less if they get the Program’s interest-free loan.

In Scenario 2, the borrower saves 5 years of interest on the BC HOME Partnership Program loan.

After Year 5           No BC HOME          BC HOME             Difference

Total Payments.       $109,254.77          $103,504.52              $5,750

1st Mortgage.              $335,128              $317,490

2nd Mortgage                   $0                     $20,560

Total Mortgage            $335,128               $338,050               ($2,922)

Financial Benefit                                                                     $2,828

The chart above is stating that there is a $2,828 benefit to getting the interest-free loan after 5 years than not getting the loan at all.

Scenario 3: 10% or more down payment

This is where the benefits are a little larger… Let’s say a borrower has 10% down payment and they get another 5% from the Program:

No BC HOME          BC HOME

Purchase Price             $400,000               $400,000

Borrower                        $40,000                 $40,000

BC HOME                           $0                        $20,000

Mortgage                       $360,000               $340,000

CMHC Fee                      $8,640                      $6,120

1st Mortgage                 $368,640                 $346,120

2nd Mortgage                     $0                         $20,560

Total                              $368,640                $366,680

In the scenario above, we actually have a lower overall mortgage amount, even though we’re charged $560 for the legal fees to BC Housing. The reason why there is this difference is because the CMHC fee went from 2.40% to 1.80%.

After Year 5                No BC HOME           BC HOME         Difference

Total Payments           $102,305.62            $96,055.83           $6,250

1st Mortgage                 $313,812              $294,641.58

2nd Mortgage                      $0                       $20,560

Total Mortgage               $313,812                $315,202.          ($1,389)

Financial Benefit                                                                 $4,860

For this scenario, we are almost $5,000 better off having successfully applied to the BC HOME Partnership Program.

In Scenario 3, the borrower is benefitting from lower CMHC premiums as well as the savings on the interest free loan.

Please don’t hesitate to get in touch with us if you would like more information about the BC HOME Partnership Program. We would be happy to help with your real estate needs.

Gary Serra & Associates

Footnote: I have not assumed any payment strategy on the part of the borrower after 5 years… The ability to pay off the loan after 5 years would be a very important discussion piece that anyone considering purchasing a home should discuss with their mortgage broker to see whether this Program makes sense for them.