The new 2019 CMHC First-Time Home Buyer Incentive
The government of Canada has heard your pleas. One of the most common complaints among young Canadians is the housing market being too expensive to break into. In 2019, real estate portal Zoocasa found that 82 per cent of those surveyed see housing affordability as a “major issue that has negatively affected Canadians.” Government intervention alone has not been enough to dampen the rising property prices found across the country. So, the Canadian government is finding other ways to aid first-time homebuyers in the pursuit of purchasing their first property. This aid is being deployed as the 2019 CMHC First-Time Home Buyer Incentive. The Canadian Mortgage and Housing Corporation (CMHC) is a Crown Corporation of the Government of Canada, which was created in 1946 to help returning World War II veterans buy houses. Since then, the CMHC has expanded its mandate to assist Canadians in finding and affording housing. As of September 2, 2019, the CMHC will be launching the application process for the new 2019 first-time homebuyer incentive. Before the application process begins, we want to bring everyone up to speed on what this incentive entails and how first-time homebuyers can benefit.
What does the 2019 incentive hope to achieve?
The largest expense for most first-time homebuyers is their monthly mortgage payment. This monthly expense consists of both a partial repayment of the principal loan as well as interest accrued. The determination of how much homeowners need to pay each month is dictated by the amount of the mortgage loan received, the interest rate of the loan, and the amortization period. The CMHC incentive will help first-time homebuyers decrease their monthly mortgage payments by helping to increase their down payment. A larger down payment results in a reduction of the size of the loan needed to purchase a property. This effectively reduces the home buyers’ monthly mortgage expense.
Eligible first-time home buyers, with the minimum down payment for an insured mortgage, can apply to receive an additional interest-free loan from the CMHC to increase the down payment for their purchase. This additional loan creates a shared equity mortgage with the Government of Canada. The loan, which is like a second mortgage, is non-interest bearing and does not require ongoing repayments. Borrowers can repay the loan in full at any time, without an early payment penalty. The maximum repayment period for the loan is 25 years, but repayment will come due upon selling the property. Repayment of the loan is based on the fair market value of the property. This means that the government shares the upside and the downside of the property’s value. For example, if the purchase price of the property is $300,000 and increases to $400,000 by the time of repayment, an initial CMHC loan of $15,000 (five per cent of $300,00 = $15,000) would evolve into a repayment of $20,000 (five per cent of $400,000 = $20,000) at maturity. Therefore, the repayment price of the loan only increases if the property value increases.
Eligibility and specifics
To be eligible for the 2019 First-Time Home Buyer Incentive you need to be, you guessed it, a first-time homebuyer. First-time buyers must meet any of the following criteria:
- You have never purchased a home before
- You have gone through a breakdown of a marriage or common-law partnership (divorce)
- In the last four years, you did not occupy a home that you or your current spouse owned
All Canadian citizens, permanent residents, and non-permanent residents who are allowed to work in Canada may apply for the incentive. To qualify you must:
- Have the minimum down payment of the purchase price (five per cent for the first $500,000 and 10 per cent of the property value over $500,000)
- Have a qualifying income of less than $120,000
- Limit your total borrowing (combination of mortgage and incentive) to less than four times your qualifying income
By meeting this criterion, the Government will offer you either a five per cent loan for the purchase of a resale house, or five per cent or 10 per cent for the purchase of a new construction house. Finally, to qualify for the incentive, your first mortgage must be eligible for mortgage insurance i.e. it exceeds 80 per cent of the home’s value (your pre-incentive down payment is less than 20 per cent).
If you have any questions regarding whether you qualify for the 2019 First-Time Home Buyer Incentive, or if this incentive is right for you, feel free to message us anytime.