Federal government to own equity share in new first-time home buyers program
New details on the rollout and launch date of the federal government’s new first-time home buyers incentive program through federal crown corporation Canada Mortgage and Housing Corporation (CMHC) were announced today.
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The program, first announced in the federal budget earlier this year, will allow qualified first-time homebuyers to purchase their first home with a reduced monthly mortgage payment, starting on September 2, 2019, with the first closing on November 1, 2019.
Buyers can receive an interest-free loan of up to 5% on an already-built home and up to 10% for a newly-constructed home, with the doubling of the incentive for purchasers of new homes designed to encourage new supply.
“No on-going repayments are required, the incentive is not interest bearing, and the borrower can repay the incentive at any time without a pre-payment penalty,” reads a release.
For example, for a family buying a $500,000 home, the program will save the program participant as much as $286 per month or over $3,430 per year.
But CMHC will own a share of equity in the value of the home, regardless of whether the value of the property goes up or down.
To be eligible, first-time home buyers must have a maximum household pre-tax income of $120,000 per year and a minimum down payment for an insured with CMHC, Genworth, or Canada Guaranty.
As well, the insured mortgage and incentive amount cannot be over four times the annual household income. The program effectively limits the value of the mortgage and the CMHC incentive to $480,000, and with a 15% down payment this would mean the value of the home cannot exceed about $565,000.
With this limit on home price, the program may not be as effective in Canada’s hottest housing markets of Vancouver and Toronto.
There is also the stipulation that the buyer must repay the incentive fully after 25 years or if the property is sold.
The incentive will cost the federal government $1.2 billion over three years.
As well, the federal government will also provide a Shared Equity Mortgage Provider Fund — a five-year, $100-million lending fund to help providers of shared equity mortgages target their assistance to eligible first-time homebuyers. This new CMHC fund will launch on July 31, 2019.
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