Starting September 2019, the Canadian government will be introducing a new way to help first-time home buyers to get into the market introduced by the Trudeau government as the ‘First-Time Home Buyer Incentive.’ This program will be available to households who earn less than $120,000 annually and the amount of the insured mortgage would be capped at four times income, or up to $480,000. In addition, the limit on tax- free withdrawals from RRSPs for first-time buyers will be raised from $25,000 to $35,000 (a limit which has not increased in over 10 years).
How will it work?
Canada Mortgage and Housing Corp. (CMHC) will provide additional funds (up to 10% funding for new homes and 5% for existing homes) to increase the initial down payments buyers provide to mortgage lenders.The financing would apply to insured mortgages (an insured mortgage applies when less than 20% is used for as a down payment.)
If a buyer was looking to purchase a $400,000 home with a down payment of $20,000 (5% down) then they may qualify for the program. The CMHC could potentially contribute $40,000 (10% of the total) to the down payment. Assuming a 25-year amortization at 3.5%, the buyer’s monthly payments change from $1,973 down to $1,745.
What’s not clear.
CMHC would now be an equity owner in the purchased property. How will the CMHC benefit from any gain or loss in the house price? It’s not clear if the homeowner would repay the amount of the loan or the equity stake based on the home value when the property is sold. Those details will be worked out in coming months.
Why is this going to be available?
Though prices and sales slumped in most cities in 2018, prices are still up 64 per cent in Vancouver over the past five years, topping $1 million on average, and up 56 per cent in Toronto over the same period, Canadian Real Estate Association data show.
For more information visit the Government of Canada Budget 2019 website: