CHARLOTTETOWN, P.E.I. — Islanders are getting some financial help from the province with the cost of a down payment for their first home.
On Tuesday, the province began taking applications for conditionally interest-free loans under the Down Payment Assistance Program, which is a part of the Housing Action Plan.
“I think it’s going to be a success. We’ve already had a lot of interest in it,” said Finance Minister Heath MacDonald.
“After (young people) get their career and start to plan a future, this is the next step. And, putting equity into a house is one of the best investments you will ever make.”
Finance P.E.I., a provincial Crown corporation, is responsible for taking applications and administering the loan repayable over 10 years.
The province is allocating $1 million for the program. It will end on March 31, 2020, or once the money is used up, whichever comes first.
MacDonald explained the program is for Islanders who are earning enough to make payments on a mortgage, but are having difficulty saving for the down payment, especially if they are paying for rent.
“They’re going to go through the same process that anybody would that’s trying to access a mortgage through a financial institution. That’s part of a safeguard,” he said.
The maximum amount of the loan is $11,250, or the five-per-cent down payment on a $225,000 home, also the maximum price for a home allowed under the program.
Besides being a first-time homeowner, other eligibility requirements include being pre-approved for an insured mortgage, having a satisfactory credit rating with no defaulted outstanding debt, and being a Canadian citizen with a household income of $80,000 or less.
Homeowners may opt to wave the first year of payments in order to adjust to unforeseen costs associated with the home. As well, the “conditional” aspect of the interest-free loan involves five-per-cent interest per year that will cumulate on the loan and be forgiven if repaid in full. If the applicant defaults on repayment, the principle and interest are due in full.
MacDonald added that the $225,000 maximum home price and $11,250 maximum down payment requirements are a starting point and could be tweaked upwards over time to reflect applicants’ needs. But for now, the maximum home price could be a way to bring back Islanders living abroad as well as grow rural communities.
Kim Reddin, owner and mortgage broker with CENTUM Mortgage Partners Inc., added that homes around $225,000 are likely found outside of the city, which may be a good thing for rural communities.
Reddin supports the down payment loan program, but she said that including the loan payment as part of their debt may reduce what a client can qualify for or it may mean a client doesn’t qualify because they can’t afford all of the payments.
“There’s just certain applications that will work and certain applications won’t. So, it does sound like a great program – free money for a down payment, but you have to remember that you have to pay it back. That payment is important,” she said.
“Credit is a big factor. You have to have good credit. You have to be able to afford the mortgage payment, the down payment assistance loan payment as well as any other payments (the client) has. So, we’ll be looking at all those factors when we do a pre-approval.”
Nova Scotia has a similar down payment assistance program.
Islanders can apply for the program using an online form at Princeedwardisland.ca/homedownpayment.