Partnering with HOA, MSI (Mortgage Services Inc.) is an FSCO-licensed Mortgage Broker (Broker #12009), and is responsible for handling all of HOA’s mortgage affairs. MSI Mortgage Services Inc. provides shared appreciation 2nd Mortgages to help reduce the amount required from home buyers for the down payment on their first home – which, by extension, allows families with lower incomes to become home owners. We offer extra help, thereby saving home buyers thousands of dollars that would otherwise be required of them to obtain high-ratio mortgage insurance.
What is a 2nd Mortgage?
Our 2nd Mortgages are Shared Appreciation Mortgages (“SAMs”). SAMs are different from conventional mortgages because they do not bear a specific rate of interest. Instead, they earn interest at a rate equal to any increase in the value of the home. For example, if at repayment a home with a shared appreciation mortgage has gone up 10% in value, then the mortgage would be discharged with the payment of the mortgage principal amount plus 10% interest. This means that homeowners neither make payments towards the principal amount of the 2nd Mortgage, nor to accumulated interest until they sell the home. Our 2nd Mortgages are also fully-open, so homeowners have the freedom to pay out voluntarily at any time.
HOA Mortgage Services Inc. is a non-profit financial corporation dedicated to assisting low and moderate income families to purchase a new home through a Shared Appreciation 2nd Mortgage. A Shared Appreciation Mortgage is different from a conventional mortgage for two reasons:
- The HOA 2nd mortgage improves affordability as it requires no scheduled repayments of principal or interest.
- It does not bear a specific rate of interest. Instead, a Shared Appreciation Mortgage earns interest at a rate equal to the increase in the value of the home. For example, if a home with a Shared Appreciation mortgage has gone up 10% in value, then the mortgage would be discharged with the payment of the mortgage principal amount plus 10% interest. If the home decreases in value, then only the mortgage principal is repayable & interest is not charged.
- The HOA 2nd mortgage is repayable upon resale, when the unit is no longer occupied by the purchaser or at any time that the home owner chooses to voluntarily repay it.
Our Criteria for Obtaining an MSI 2nd Mortgage:
We only provide mortgages to purchasers who have bought units in our partner’s, Options for Homes, developments. To be considered for an HOA Shared Appreciation purchasers must be at least 19 years old, be legal permanent residents of Canada and have household income at or below the maximum income level for the municipality in which they reside.
The new home must be the principal residence of the purchaser (HOA does not provide provide mortgages for investor-purchasers). As well, purchasers must not already own or have an ownership interest in another home. HOA will assess each purchaser’s individual credit profile and mortgage carrying capacity. Purchasers may also need to satisfy additional qualification criteria in order to receive funding from our partners.
Where does MSI get its funding?
We have created a growing, self-sustaining, permanent revolving fund. The 2nd Mortgage captures the value initially created through development, and a proportionate share of the increase in value over time. This pool of assets represents “social equity” that would otherwise accrue to developers. Instead, through our 2nd Mortgages, the equity is preserved and grows as a revolving fund which is essential to providing affordable housing in the future.
HOA, a non-profit corporation operating under a Declaration of Trust, holds this revolving fund of equity solely for the purpose of providing affordable housing in perpetuity. The growth in HOA’s assets demonstrates the importance of preserving social equity in a revolving fund dedicated to providing affordable housing. HOA’s funding partners – the federal, provincial and municipal governments – have provided an additional $8.7 million to use as down payment support for families who need more than just the basic 2nd Mortgage help.
Interest & Repayment
How is interest calculated on my MSI 2nd Mortgage? The interest rate is the percentage increase in the value of the home from the purchase date until the mortgage is paid off. For example, if the home went up 20%, then the interest rate is 20%. When calculating the percentage increase, the actual sale price is reduced by 4% as an allowance for real estate commissions. The interest rate is then multiplied by the amount of the outstanding mortgage to determine the amount of interest payable.
A home purchased for $200,000, sold for $250,000 with an Alternatives Mortgage of $20,000.
Sale price of $250,000 less the 4% allowance for selling costs = $240,000 Selling Price
Selling Price of $240,000 less the purchase price of $200,000 = $40,000 increase in value
$40,000 increase in value divided by the $200,000 purchase price = 20% interest rate
So, the interest is 20% x $20,000 Alternatives Mortgage = $4,000 interest payable
When must my MSI 2nd Mortgage be paid off?
MSI 2nd Mortgages must be paid off under two circumstances:
- If the purchaser no longer owns and/or lives in the home (e.g. the home is sold, rented out after 2 years of initial purchase date, transfer of ownership to anyone else (this includes the death of the home owner) etc.); or,
- If the initial mortgage amount is increased to consolidate debts or to free up cash for some other purpose (i.e. any process that puts a larger mortgage onto the title of the home). If the mortgage is refinanced so that it is larger than the original amount, the 2nd Mortgage must be paid off.
For more information, please do not hesitate to contact us at:416-214-1363.