Further details have just been released about the First Time Home Buyer Incentive program that was initially announced during the last federal budget. The initiative could see Canada's housing agency contribute up to 10% of the purchase price of a buyer's first home.
Under the fine print for the First Time Home Buyer Incentive program, which was announced in March and will officially launch in September, a first-time homebuyer who earns less than $120,000 can qualify. The Canada Mortgage and Housing Corporation would kick in up to 10% of the purchase price of the home, providing the borrower comes up with the minimum amount for an insured mortgage, which is now at 5%.
There’s also a requirement that the total value of the mortgage plus CMHC’s portion doesn’t eclipse $480,000. That effectively means the program is only available for properties worth a maximum of about $565,000, regardless of whether or not they have met the other requirements.
If these conditions are met, CMHC may kick in an additional 5% of the purchase price of a resale home. For a newly built home, CMHC may contribute up to 10%.
The investment from CMHC would be interest-free, meaning there would be no ongoing cost to pay down, similar to a mortgage.
The investment from CMHC would be interest-free, meaning there would be no ongoing cost to pay down, similar to a mortgage.
However, in exchange for its stake, CMHC would get to participate “in the upside and downside of the change in the property value” — which means they would be entitled to any corresponding increase in the value of a home when the buyer eventually sells. On the flip side, the government would also on the hook for any share of the loss if the property depreciates.
On a home costing $500,000, if the borrower puts up $25,000 and CMHC puts up the same amount, CMHC would then own 5% of that home. So if the house appreciates to $600,000 and the borrower wants to sell, they would have to give CMHC 5% of the sale price — $30,000 in this example — not the $25,000 CMHC put down in the first place.
While a bill would be paid down the line, the savings over the years could add up. In the example above, the program would save a would-be borrower $286 a month in mortgage costs over the life of the loan, $3,430 a year.
The program would save a would-be borrower $286 a month in mortgage costs over the life of the loan, $3,430 a year.
The program must be paid back within 25 years — or if the buyer sells before that — but there’s no financial penalty for buying CMHC out of its stake, at whatever the fair value of the home is at the time.
Applications will be accepted as of Sept. 2 for home sales that will close no earlier than Nov. 1.
