The First Time Home Buyer Incentive
The 2019 federal budget announcement included $1.25 billion over three years for “shared equity mortgage” with first-time home buyers. That means Canada Mortgage and Housing Corporation (CMHC) could contribute up to 10 per cent of the purchase price of a home in what will essentially be an interest free loan that does not need to be paid back until years later – possibly when the home sells. There are still more details to come and questions to be answered, but here are a few of the qualifying requirements we know about:
- Applicants must have a household income of less than $120,000 per year.
- Applicants must be able to come up with a five per cent down payment.
- The program caps out at four times the applicant’s annual income, which means it can only help homeowners looking to buy properties where the mortgage value plus the CMHC loan don’t exceed $480,000.
This Initiative could save first-time home buyers a considerable amount of money. For example, if a first-time buyer wants to get a home that costs $400,000, they must come up with a $20,000 down payment, then they’d normally have to take out a loan for $380,000 to cover the rest of the purchase price.
However, under the new program, CMHC could kick in up to $40,000 toward the purchase price, in exchange for up to a 10 per cent stake in the home. That brings the buyer’s mortgage down to $340,000. On a standard mortgage at 3.5 per cent interest, that translates into a monthly mortgage payment that is $200 lower than it would have been for the 25-year life of the loan. That’s more than $2,700 a year in potential savings, a significant amount of money for households that are just starting out in their careers and growing their families.