On September 2nd, 2019 the Government of Canada is introducing a new program to help first time home buyers save on their monthly mortgage payments. This new equity sharing program is designed for first time home buyers across Canada. There is still more information that needs to be released but this is what we know so far.
Who qualifies for this?
The program is for first time home buyers that have a combined household income of $120,000 or less. You must still have at least 5% down from your own resources. Non repayable gifts from immediate family members still apply. The program qualifies on a purchase of a single family home, semi detached home, duplex, triplex, fourplex, town home, or condo. The mortgage must be insured from one of the 3 Canadian mortgage default insurers.
How much can you qualify for?
The program will match up to 5% on a home purchase or up to 10% on a new build. This is done as a equity share in the home and is registered as a second mortgage on title. The mortgage amount can not be more than 4 times the combined income of the applicants.
What does a equity share mean?
When the home is purchase and you put 5% down, the government will match the 5% down payment. The government now owns 5% of your home. When you go to sell your home, the government will be paid back 5% of the value of your home. So if you buy a home for $200,000 the government will give you $10,000 for part of the down payment. If you sold your home in 10 years for $250,000 you would pay the government back $12,500 (5%). On the flip side of this, if the home were to lose equity, the government would have to help pay back 5% of the equity it lost.
How does this help?
The main focus of the program is to help home buyers save on their mortgage payments. If you were to buy a $400,000 home with 5% down your monthly mortgage payment would be about $1848. If you were to add the 5% incentive, this drops the mortgage payment to $1735. A monthly savings of $113 or $6780 over 5 years time. If this was a new build and you took advantage of the 10% incentive the payment would drop to $1634, a savings of $214 per month. The higher down payment would also lower the amount of mortgage default insurance that would be required.
What’s the catch?
There are still questions to be answered on this but there are things to think about before signing off on this program. The incentive is not portable. Most first time home buyers are younger people who may have growing families. They could out grow this home in just a few years. A regular mortgage would be portable meaning you could transfer the mortgage over to a new home with no penalties. With this incentive on your home, when you sell, the incentive needs to be paid back. This could prove difficult in the first few years of a mortgage. This also would be the same for mortgage renewals. Transferring your mortgage at renewal will be very difficult as well. This would mean that you would have to take whatever your current mortgage lender is offering at renewal. This gets rid of negotiating power as some lenders don’t offer great rates on renewal.
This is what is out there for information as of today. With just over a week until the launch of the program there will be more info coming out soon I’m sure. Make sure you ask a lot of questions before signing up for the program. This program can be helpful to some but not everyone. More information can be found here on the National Housing Strategy https://www.placetocallhome.ca/fthbi/first-time-homebuyer-incentive
Thanks for reading
Regional Mortgage Group – Mortgage Alliance