The First-Time Home Buyer Incentive promised in the 2019 Federal Budget will go live on September 2, the Canada Mortgage and Housing Corp. announced June 17. The launch will land just a few weeks before the October federal election.
The program will offer first-time Canadian home buyers an interest-free, payment-free loan, from a fund run by CMHC, matching the buyer’s down payment. This is up to five per cent of the purchase price on a resale home, or 10 per cent on a new-build or presale home.
Eligible first-time homebuyers, with a maximum household pre-tax income of $120,000 a year, who have the minimum down payment for an insured mortgage with CMHC, Genworth or Canada Guaranty, can apply for the funding in the form of a shared equity mortgage with the federal government. The buyer’s mortgage plus the loan awarded cannot total more than four times their annual income.
The loan is interest-free and doesn’t require monthly payments. The government’s portion of the home shares in rising or falling values. The loan, plus any equity uplift on that portion, is repayable to the government upon sale of the home or after 25 years, whichever is sooner.
CMHC said that for buyers purchasing a $500,000 new-build home, they would save up to $286 a month in mortgage payments.
James Laird, co-founder of Ratehub Inc. and president of CanWise Financial, criticized the incentive in a media statement. He said, “The key issue remains qualifying, and this program diminishes the amount that a first-time home buyer can qualify for by about 15 to 20 per cent. This is because the program limits the mortgage amount to four times the households' income, whereas those not participating in the program can actually qualify for a mortgage that is 4.5 to 4.7 times their income. Household income for qualified home buyers is also capped at $120,000.
“Those who would be attracted to the program would be Canadians who are trying to purchase at their maximum qualification. However, because the program diminishes how much you can qualify for it doesn't serve the needs of the group it is targeted at. Canadians can get a larger loan by not participating in the program.”
The Government of Canada has allocated $1.25 billion over three years for this program. More information and examples of the incentive’s benefits can be found here.
The 2019 Budget also announced the Shared Equity Mortgage Provider Fund, which will help fund providers of shared equity mortgages to eligible first-time home buyers. This five-year, $100 million lending fund will offer eligible applicants loans from one of two funding streams: pre-construction (stream 1) and Direct Shared-Equity Mortgages (stream 2).
- Stream 1 is for pre-construction costs to build new housing projects that provide shared equity mortgages to home purchasers.
- Stream 2 is for funding of shared equity mortgages provided by the proponent directly to home purchasers.
The Shared Equity Mortgage Provider Fund will be launched on July 31, 2019, and will also be administered by CMHC. More information can be found here.