_{CMHC (Canada Mortgage and Housing Corporation)}

The Federal Liberal government, in their latest budget before that was released in March, introduced new First-Time Home Buyer Incentives, but didn’t have many details of the program. Well, newly released details have these incentives scheduled to take effect in September 2019. 

The new $1.25-billion program will allow new first-time home buyers to apply for an interest-free loan from Canada Mortgage and Housing Corporation (CMHC). The loan applied for would be used for, and valued at, 5% of the purchase price of an existing home or 10% towards a new build. These additional funds, over and above the mortgage, could lower the cost of a mortgage making the purchase even more affordable.

To qualify for the incentive program, certain requirements must be met by the first-time home buyer. They include:

• Total household income must be under $120,000.
• First-Time buyers must still have saved a minimum 5% down payment.
• The loan amount cannot exceed 4 times the participants’ annual income (max of $480,000).
• The loan must still be repaid.

Additionally, the new rules will increase the amount first-time home buyers may withdraw from their RRSP funds in order to finance their purchase from $25,000 to $35,000.

While that is good news for many buyers, the new proposal did not alter the regulations regarding the mortgage stress test for first-time home buyers or any other home buyers.

What does that mean in a real world situation? Here are a couple of examples from the CMHC website showing the new rules in action for a first-time home buyer:

CMHC Example 1

Anita wants to buy a new home for $400,000.

Under the First-Time Home Buyer Incentive, Anita can apply to receive $40,000 in a shared equity mortgage (10% of the cost of a new home) through the program. This is on top of the minimum required down payment of $20,000 (5% of the purchase price) from her savings.

This lowers the amount she needs to borrow and reduces her monthly expenses.

As a result, Anita’s mortgage is $228 less a month or $2,736 a year.

Years later, Anita has sold her first home for $420,000. At this time, she would now have to repay the original incentive she received as a percentage of her home’s current value. This would result in Anita repaying 10%, or $42,000 at the time of selling her house.

* This example is for illustrative purposes only. All property values and home prices used in this example are not an indicator on how property values are forecasted.

CHMC Example 2

John has an annual qualifying income of $83,125.

To be eligible for Canada’s First-Time Home Buyer Incentive, he can purchase a home up to $350,000. John still has the required minimum down payment of 5% of the purchase price, $17,500 from his savings. He can receive $35,000 in a shared equity mortage — 10% of a newly constructed home.

This would reduce John’s mortgage payments by $200 a month or $2,401 a year.

Years later, John has to decided to sell his home, but it is now worth $320,000. When he sells his house at the price of $320,000, John will have to repay the original incentive he received as a percentage of his home’s current value. This would result in John repaying 10%, or $32,000 at the time of selling his house.

* This example is for illustrative purposes only. All property values and home prices used in this example are not an indicator on how property values are forecasted.

Are you looking for your first home?  Check out these great townhome options at Boulevard Villas – a perfect option for first time buyers!