in Mortgage Financing by David Iverson

First Time Home Buyer Loses Money with the BC Home Equity Assistance Program

ARE YOU KIDDING ME?!? HOW CAN THIS BE?!?

If you are a first time home buyer, or you know of a first time home buyer that has a 5% down payment saved from their own resources, and another 1 ½% for closing costs, you might be better off without the program. davidiverson.ca

But Dave, I’m looking to purchase a residence for $350K and the BC Government will LEND ME $17,500 CASH or 5% matching the 5% I’ve saved. That money will go directly towards the principal of my mortgage reducing the amount of interest I pay for the first 5 years. The loan is also interest free for 5 years with a rate guarantee of Prime + .5% or 3.2% today.

HOW CAN I LOSE?!?

That is true, BUT…if you go to the bank and request a mortgage based on what you’ve told me, this is likely how it will break down:
Purchase price: $350K less down payment of 10% or $35K (5% $17,500 + 5% $17,500) = $315K
Plus CMHC insurance @ 4% $12,600 (March 17) = First mortgage $327,600
Interest rate 2.69% Amortized over 25 yrs Monthly payment: $1,498.72
Balance after 5 years $278,327.45
Outstanding BC Home Loan $17,500
Total loans outstanding $295,827.45

Same scenario without the BC Home Loan Program: $350K – 5% or $17,500 = 332,500
Plus CMHC insurance @ 4% $13,300 (March 17) – First mortgage of $345,800
I/R 2.69% Amortization 25 yrs Monthly payment $1,581.98
Balance after 5 years $293,790.09
Savings: $2,037.36

But Dave, I’m paying more per month in the second example using a 5% down payment?

That is true, and the reason is that in both cases, the monthly payment calculated is the minimum amount you can pay in order to satisfy a 25 year amortization. The lower payment will be the one that most first time home buyers end up with because it isn’t likely your banker will advise you to increase your payment. (The lower your monthly payment, the more interest you will pay).

Unless you are a savvy first time home buyer or you are working with a licensed Mortgage Professional, who has your best interest at heart, the BC Home Equity Assistance Program could cost you money when you have 5% or more saved for a down payment.

I am such a Mortgage Professional David Iverson

Twitter @mistermortgage

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