Over the past several years, it has become increasingly difficult for many people, particularly first-timers, to enter the housing market. This is due to a variety of factors, but most notably tighter mortgage rules implemented by the federal government – including the much-talked about stress test.
In an attempt to make homeownership more affordable, the federal government announced a new incentive plan during the 2019 budget in March. Through the government-owned Canada Mortgage and Housing Corporation (CMHC), the First-Time Home Buyer Incentive (FTHBI) is scheduled to launch on September 2nd. The government has budgeted up to $1.25 billion over the next three years for the program.
How it works
Essentially a shared-equity mortgage, the goal is to provide first-time buyers with the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC. CMHC will advance an interest-free, insured loan of up to 5% on an existing home and up to 10% for a new home in exchange for an equivalent equity stake in the property.
By applying for this type of financing, homebuyers take out a smaller mortgage with lower monthly payments. While there are no ongoing or monthly pay-back requirements, the loan must be repaid when the house is sold or within 25 years, whichever comes first. On the surface, this may sound particularly appealing, but there are certain stipulations that are important to keep top of mind.
The program is only available to first-time buyers with annual incomes of $120,000 or less. The amount of the mortgage and FTHBI amount cannot exceed four times the annual household income, which, in today’s competitive market, may actually lower affordability, particularly in more expensive markets such as Toronto or Vancouver.
Designed to assist those who face challenges entering the housing market, the program is essentially another form of debt to repay, which won’t exactly help those who are already experiencing difficulties.
Applications for the program will be accepted as of September 2nd for home sales that will close no earlier than November 1st. As always, it’s best to speak with your mortgage agent for a list of the program’s pros and cons, and to determine whether it’s right for you.
Have questions about opting for a shared-equity mortgage? Answers are a call or email away!