How is interest calculated on my HOA 2nd Mortgage?
The interest rate is based on 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% in value, then the interest rate that will be charged is 20%.
A home purchased for $500,000, sold for $600,000 with an HOA 2nd Mortgage of $50,000.
Sale price of $600,000 less the purchase price of $500,000 = $100,000 increase in value
$100,000 increase in value divided by the $500,000 purchase price = 20% interest rate
So, the interest is 20% x $50,000 HOA 2nd Mortgage = $10,000 interest payable
When must my HOA 2nd Mortgage be paid off?
HOA 2nd Mortgages must be paid off under the following 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 primary mortgage amount is refinanced so that it is larger than the original primary mortgage amount, the HOA 2nd Mortgage must be paid off.
What is the average value of a 2nd Mortgage?
HOA 2nd mortgages are typically 10 to 15 per cent of the purchase price.
What happens to the funds that are repaid to HOA?
When HOA 2nd mortgages are paid back, HOA uses the proceeds to create more affordable homes for new purchasers.
Where does HOA get its funding?
We have created a growing, self-sustaining and permanent revolving fund. The HOA 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 the developers. Instead, through our 2nd Mortgages, the equity is preserved and grows as a revolving fund which is essential to providing housing affordability in the future.
How do government partnerships help the HOA model?
To date, HOA’s funding partners – the federal, provincial, and municipal governments – have provided over $9 million to use as down payment support for families who need more than just the basic 2nd Mortgage help.