The present federal government is gearing up for the election this fall and has released its proposed budget, which includes incentives for first-time home buyers.
The proposal offers two options for potential buyers looking for help from the government in order to purchase their first home. The first option is a change to the already existing Home Buyers Plan (HBP), which would increase the RRSP borrowing limit from $25,000 to $35,000. The second option is a small loan.
CMHC First-Time Home Buyers Incentive
This option is better labelled as a “shared equity mortgage.” This means that you provide the initial 5% down payment and the Canada Mortgage and Housing Cooperation (CHMC) will provide an additional lump sum toward your mortgage (to be paid back later, likely at resale.) CMHC proposes to provide first-time home buyers with a sum of 5% for resale homes or a sum of 10% for new builds.
Here’s a comparison provided by the proposed 2019 federal budget.
In this example we see that the home buyer, Anita, provides a 5% down payment and the government gives her an additional 10%. This drops her monthly mortgage payment down by $228. What Anita does with this savings is up to her. She could pour it back into her mortgage, invest it, use it for something fun, or allocated it toward everyday living expenses. The choice is up to her.
Decreased Borrowing Power
Before potential borrowers get too invested in this proposed incentive, it should be noted that it will decrease your borrowing limit.“The current qualifying criteria, including the stress test, allows a household to qualify for a house that is 4.5-4.7 times their household income,” James Laird, president of CanWise Financial, said. The proposed CMHC incentive will only be available to households making a maximum of $120,000 annually, and a participant’s insured mortgage and incentive amount cannot be more than 4 times his or her annual household income. For example, a household making $120,000 a year could presently qualify to purchase a property priced at about $564,000. But within the CMHC incentive program the same household could only qualify for a house priced at $480,000. That means that families anticipating using the proposed incentive program will also have to anticipate reducing their maximum purchase price by 15%.
The exact details of the program, such as when the incentive will be paid back, how much the home owner will owe (dollar value vs percentage), and whether or not the “loan” will accrue interest are not described in the proposal. Until the results of the election in the fall and finer details on this first-time home buyers incentive come to light, try our quick mortgage pre-approval application below to find out how much mortgage you could qualify for. Or contact us today.