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.
Refresher: what the program is and how to apply.
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%, < 20% | 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 | $317,490.00 | |
| 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 | ||
In Scenario 3, 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 mortgage needs.
Eitan Pinsky
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 I, or any other Pinsky Mortgages team member would have when we discuss whether this Program makes sense for them.
