How Is Interest Calculated On My HOA 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.
For example, 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
An increase in the first mortgage will require paying off the HOA mortgage as this is a deemed sale based on Canada Revenue Agency guidelines. However because the home has not changed ownership, Home Ownership Alternatives will estimate the market value of the home to determine the Selling Price. Market Value is estimated using the most current sale prices from the Toronto Real Estate Board from actual sale prices in the building. Due to variations in type and sizes of townhomes, market value is based upon comparable homes that have been sold in the area.
There are guidelines about calculating the amount owing and the interest payable if the resale price of the home is less than what you paid for it. In this rare circumstance HOA will calculate the value and disclose the calculation to you in the discharge letter.
The detailed legal language about when your mortgage has to be paid off and how the interest is calculated is found in Schedule G of your mortgage (or, in some mortgages the schedule is called Schedule K).
