Update on Habitat Edmonton’s New Mortgage Model

Habitat for Humanity is a non-profit organization working towards a world where everyone has a decent place to live. We work to build affordable housing for low income families, including those who have faced barriers to homeownership due to racial and social injustice.

For several months Habitat for Humanity Edmonton has been working through a legal dispute with some of the families we serve. We wanted to provide some information for the families, our community and supporters to let them know what’s taken place and how we have worked to try and come up with the best resolution possible for everyone involved.

Fortunately, many of the families involved have now made the decision to move to mortgage under this new model. We are pleased that these families are choosing to remain in the program of affordable homeownership and are confident that the advantages the new model offers will improve their lives in the long run.

The disagreement has related to how we structure the mortgages for the families that participate in our program. Over the years we have had several different ways of funding and administering our mortgages. The way we structure mortgages has periodically changed to meet the needs of the families we support, and the funding realities we are dealing with to ensure we can continue our important work, but we have always ensured that Habitat families pay no more than 30% of their household income for monthly housing costs.

Several months ago we updated our mortgage model again, so that 50% of loans received were at a 0% interest rate and 50% were funded at a lower than market rate supported by a local credit union.  While we used to offer mortgages fully at a 0% interest rate this was no longer sustainable and affordable for the organization and if we would have continued on we would have had to stop building any new homes in Edmonton, at a time when they are badly needed.  You can see more details about our new mortgage model here.

In looking back, we acknowledge that we could have been better at communicating that mortgage terms are only offered at the end of the tenancy period, and that they may be different from mortgages that others in the program have signed. Any perception that we might have created that we are not acting in what appears to be the families’ best interests is unfortunate, and regrettable. We have taken steps to ensure better communication to future families who apply for the program.

The solution we put forward was the best option available. There are some important points to note about it:

  • Families’ monthly payments remain the same. We made sure the new mortgages were no more of a financial strain on the families we serve than the previous mortgages.
  • There is still no downpayment required under the new mortgage model.
  • Families will continue to pay no more than 30% of household income for monthly housing costs (i.e. mortgage, taxes, insurance, and condo/program fees).
  • Because half of the mortgage is with a financial institution, families can build a credit history making it easier to qualify for a mortgage in the open market when they decide to sell their Habitat home.
  • If the value of the home increases families will enjoy increased value, up to a 3% shared appreciation, something they did not receive previously. This amount more than offsets the cost of interest if families stay in their homes for eight years or more.

Over the past two weeks most of the families involved in the litigation have met with us to discuss how they would like to move forward, either in purchasing the home or leaving the program with our financial support. In almost all cases we are continuing to offer them mortgages to buy the homes they have been renting and their monthly payments will not change if they choose to move to a mortgage. We very much would like to see them remain with our program and think it can benefit them greatly, but ultimately that is up to them and we continue to reach out to the families to discuss their options and the process of moving to mortgage.

To accommodate families whose religious affiliation prevents them from taking on a mortgage with interest, we have also worked to develop an exception mortgage to address this issue, which remains available for families to apply to upon request. This is a first of its kind initiative that we are glad to have been able to pilot and will assist other families in similar circumstances. The families will have to meet certain requirements, such as not having taken on other interest bearing loans, but provided they meet these requirements this will offer an option that addresses these individual concerns.

There are also a few families who unfortunately would not have qualified to continue with our program under the previous mortgage model or the current mortgage model because of a variety of personal circumstances. Even under our program, homeownership involves costs that not everyone can take on. For these families, we have worked with them to extend their tenancy whenever possible to help with remediating their credit or employment, or to transition to other alternative housing options if possible.

For those families who are choosing to exit the program, we are offering support to make the transition as seamless as possible. We’re confident that what we’ve put in place for the families involved is fair and equitable. Also, by making these critical changes, we will ensure the ongoing financial viability of Habitat Edmonton and the ability to continue delivering greatly needed affordable housing solutions in our community.