The New First Time Home Buyer Incentive - What it is, How it Works

Updated: Apr 4, 2019

Canada Mortgage and Housing Corporation to contribute up to 10% toward new build down payments, and changes to the Home Buyer’s Plan

If you qualify under the proposed First Time Home Buyer Incentive, CMHC will cover 5%-10% of a property's sale price as an interest free 'shared equity loan'

If you’ve been watching the financial news, you might have seen some considerable buzz about a new policy in the proposed 2019 federal budget: the First Time Home Buyer Incentive. In essence, this policy would make buying your first home significantly more accessible to Canadian consumers. If you have a household income below $120,000 per year, the Canada Mortgage and Housing Corporation (CMHC) will cover up to 10% of your down payment towards a newly built home, and 5% towards a re-sale. That is, of course, as long as you contribute the minimum 5% down for a CMHC insured mortgage. This contribution to the down payment is being dubbed a ‘shared equity loan’, that doesn’t have to be repaid by the borrower until either they sell the home, or they decide that they want to pay it off. The finer points of how the loan will be repaid - and whether or not the loan will grow with the value of the home - have yet to be determined by the federal government.


As for how this program will work for you, it will depend entirely on your household income. The program will only cover a total mortgage that is at most four-times your annual income, meaning if your household income is $100,000 per year, it will only be applicable to a mortgage property up to $400,000. Assuming it’s a new build, CMHC would then cover 10% of the down payment, or $40,000. With the minimum 5% down payment - $20,000 in this case - from the buyer, that gives a total 15% down payment of $60,000. Given this example, the federal government expects a $228 per month lower mortgage payment, assuming a 3.5% interest rate and amortization of 25 years. That is a not-insignificant number, as it means saving $2,736 over the course of the year - of course, given those previous numbers.


Further to this, the allowed RRSP withdrawal for the Home Buyers’ Plan is being increased from $25,000 to $35,000, which will be available for withdrawals made after March 19, 2019. Keep in mind that you can in fact benefit from the Home Buyers’ Plan more than once, provided that you have not owned a home occupied as your principal residence at any time during the current year, and the previous four years. An additional change is also being proposed to the plan, which would allow individuals who have “experienced a breakdown in their marriage or common-law partnership” to be able to make use of the Home Buyers’ Plan, provided that they live separate from their spouse or common law partner for at least 90 days. There will be additional conditions as well, but these have yet to be announced. Whether using it for the first time, or using it again after a period of not owning a home, the deadline for repaying the Home Buyer’s Plan is remaining 15 years.


In all, these changes do seem like they will make buying a home more accessible to Canadians, but it’s hard to tell right now exactly how everything will work with the missing details. As of right now, we don’t know whether or not the same flexibility in the Home Buyers’ Plan will be present in the First Time Home Buyer Incentive, so it could be a once in a lifetime benefit. In terms of hard numbers, the new First Time Home Buyer Incentive is projected to cost CMHC $1.25 billion over the next three years. Another caveat to the Incentive is that some financial commentators believe that this could lead to inflation of property values due to the government offering what some consumers may consider ‘free money’. If this incentive will put buying a home within your reach, remember: it’s never a bad time to reach out to a mortgage professional.


All information herein subject to change and all offers mentioned are subject to change and OAC.


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