HOA provides Shared Appreciation 2nd Mortgages to families that could not otherwise afford to buy homes.
What is a Shared Appreciation 2nd Mortgage?
It is a special type of mortgage without interest. Instead of interest, a share of the increase in value of the home is paid to HOA. This is calculated from the day it is bought until it is sold or the mortgage is repaid.
The advantages to this type of mortgage include:
- Buyers with modest incomes can afford to own
- HOA is providing down payment assistance
- There are no monthly payments on this mortgage
When do I have to pay interest?
There is no interest. When you no longer need assistance – that is, when you sell your home or if you wish to pay off the mortgage – you will then pay the capital amount of the mortgage as well as a percentage of the increase in the value of the house.
What happens to the funds that are paid back to HOA?
When HOA 2nd mortgages are repaid, HOA uses the proceeds to create more affordable homes for new purchasers in situations similar to your own.
How does Down Payment Assistance work?
Buyers must make a down payment of 5% of the purchase price of the home. This will be supplemented with funds allocated through HOA for qualified buyers. The funding comes from various sources including HOA, the local municipality, the Province of Ontario, the Canadian Mortgage and Housing Corporation, and the Federal Government.
How do I repay my 2nd Mortgage?
As stated above, the amount you pay to HOA is based on the increase in the value of the home from initial purchase to sale.
To allow for selling costs, however, the actual sale price is decreased by 4%. This means that the increase in value is calculated on the selling price less the sale commission.
A home purchased for $250,000 is sold for $300,000 with a 2nd Mortgage of $37,500
To find the amount to be paid to HOA, first, the 4% allowance for selling cost is subtracted from the sale price:
$300,000 – 4% = $288,000
Then, in order to find the increase in value, the original purchase price is subtracted from the selling price:
$288,000 – $250,000 = $38,000
The increase in value is then divided by the purchase price to determine the percentage increase:
$38,000 ÷ $250,000 = 15.2%
And the percentage increase is multiplied by the amount of the second mortgage, to find the amount payable:
15.2% of the $37,500 = $5,700
For a 15.2% increase in value on a $250,000 house, the interest payable will be only $5,700
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