On March 19, 2019, Finance Minister Bill Morneau tabled his final federal budget before the election in October. The budget introduced a new program to help first-time homebuyers afford a home. Through the program, CMHC could contribute up to 10% of the purchase price to reduce the mortgage load for buyers. To qualify, a buyer must have a household income of less than $120,000 per year and be able to come up with a five per cent down payment — the minimum requirement for an insured mortgage with CMHC. Exact details will be provided later in the Fall. The home buyer will ultimately have to pay back the CMHC's share of the equity in the property — but not until they sell (or sooner, if the buyer wants to make payment).
Budget 2019 introduces the First-Time Home Buyer Incentive.
- The Incentive would allow eligible first-time home buyers who have the minimum down payment for an insured mortgage to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corporation (CMHC).
- It is expected that approximately 100,000 first-time home buyers would be able to benefit from the Incentive over the next three years.
- Since no ongoing payments would be required with the Incentive, Canadian families would have lower monthly mortgage payments. For example, if a borrower purchases a new $400,000 home with a 5 per cent down payment and a 10 per cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month. Terms and conditions for the First-Time Home Buyer Incentive would be released by CMHC.
- CMHC would offer qualified first-time home buyers a 10 per cent shared equity mortgage for a newly constructed home or a 5 per cent shared equity mortgage for an existing home. This larger shared equity mortgage for newly constructed homes could help encourage the home construction needed to address some of the housing supply shortages in Canada, particularly in our largest cities.
- The First-Time Home Buyer Incentive would include eligibility criteria to ensure that the program helps those with legitimate needs while ensuring that participants are able to afford the homes they purchase. The Incentive would be available to first-time home buyers with household incomes under $120,000 per year. At the same time, participants’ insured mortgage and the Incentive amount cannot be greater than four times the participants’ annual household incomes.
I hope to post a blog soon from a guest-writer in the mortgage industry with further commentary on this subject, and we await further details as they emerge in the Fall. Please contact us if you have any questions on this subject, or mortgages in general.