As of January 16, 2017, first-time homebuyers in British Columbia will be able to apply for interest-free loans to help increase their down payments. This initiative titled the B.C. Home Owner Mortgage and Equity Partnership, has been put into place by the province’s Liberal Government to help first-time homebuyers, having trouble saving up for a large enough down payment, purchase a home in the country’s hottest real-estate market.
Infographic: The Cost of Buying a House in Canada, check it out here.
The Program
Let’s take a closer look at the B.C. Home Owner Mortgage and Equity Partnership and see exactly how it plans to help consumers, in British Columbia, enter into the housing market for the first time.
The Loan
- 25 year loan to help first-time homebuyers increase their down payments.
- It will match what a consumer has already been able to save up.
- Interest-free for the first five years.
- Repayment only starts after the first five years.
- Loan can be up to 5% of the purchase price of the property.
- The loan must be repaid in full if any of the following events occur:
- Homeowner defaults on their mortgage or the down payment loan.
- If the ownership of the home is changed or transferred.
- If the home is no longer the principle residence of those on the title at any point during the first five years.
The Property
- Must be worth $750,000 or less.
- Property being purchased must be the principal residence of all those on the title.
- Owners must live permanently in the house for the five years after purchase.
The Applicant
- Must be a first-time homebuyer.
- Consumers must have a partial down payment already saved.
- Consumer(s) cannot make more than $150,000, combined.
- Consumers must get preapproved for an insured high-ratio mortgage.
- Must be a Canadian citizen or permanent residents (for five years) and have lived in B.C. for one year.
The Pros
Premier Christy Clark believes that this new program will allow consumers who can afford to make mortgage payments but can’t quite scrape together enough money for a down payment, purchase their first homes. Let’s take a look at a few of the advantages of this new loan program.
- The program will be available for the next three years for first-time buyers looking to purchase a home in British Columbia.
- As the first five years will be interest-free, this program will allow homeowners to save a significantly about of money during that time period.
- After the first five years are up, homeowners can start to make payments for the next 20 years or decide to pay off the loan in full. They may also make extra payments at any point without any penalties.
Read up on the major changes to the Canadian housing rules from earlier this year.
The Cons
While the British Columbian government has been vocal about its confidence in the success of this program, there have also been those who have spoken out against the program and believe that it will in fact not have the intended results. Here are a few of the disadvantages of the program,
- While the program is meant to help first-time homebuyers enter a very tough real-estate market, it may also encourage some to take on more debt than they can realistically afford to handle.
- The program could also encourage some to increase their bids, to try to ensure that they’ll get the home they want. This may lead to increased housing prices.
- The program could also affect the supply and demand balance as the amount of consumers able to purchase property will increase but the amount of for-sale property may not.
When is Purchasing a Home The Right Choice?
Since everyone’s financial situation is so different and dependent on many outside factors, it’s hard to say exactly when the right time to purchase a home is. That being said, the most important question any first-time homebuyer needs to ask themselves is whether or not they can afford to take on the burden of that type of debt.
A mortgage is often given the title of “good debt”, it can be good but it can also be bad, especially if you’re not financially ready to take on that type of commitment (are you house poor?). If you live in B.C. and are currently struggling to save up enough for a down payment on your first home, this new loan program could help you. But, before you make any final decisions please think about this: if you can’t afford to save up enough for a down payment, why do you think you can afford to own a house?
For more information on the B.C. Home Owner Mortgage and Equity Partnership, visit their site here.
