2019 Federal Budget: What It Means to First-Time Homebuyers

2019 Federal Budget: What It Means to First-Time Homebuyers

This year’s Federal Budget was highly anticipated in the mortgage world! The Government announced 2 changes to the mortgage landscape with: 

  • An updated Home Buyers’ Plan (HBP),
  • A new First Time Home Buyer Incentive Plan.

Until we see the fine print from the Canadian Mortgage and Housing Corporation (CMHC) for further details, here is what we know so far.

What changed with the Home Buyer’s Plan (HBP)?

The government is increasing the amount that a first-time buyer can extract from an RRSP, without having to pay tax on the withdrawal. The current level of $25,000 is going up to $35,000. (Great news if you can afford it!)

Canadians who experience a divorce or the end of a common-law partnership will be able to participate in the Home Buyer’s Plan – even if they don’t meet the technical requirement of being a first-time buyer. (We don’t wish divorce on anyone, but it’s still good news!)

When is this change taking effect?

Now. According to the official publication of the Federal Budget, this would be available for withdrawals made after March 19, 2019.

What’s the new First Time Home Buyer Incentive Plan?

For the purchase of a home, the Canada Mortgage and Housing Corporation (CMHC) can help cover 5% of the property price to eligible first-time homebuyers. What’s interesting for homebuyers is that no monthly repayments are necessary. You can think of it as an interest-free loan – but the CMHC will ‘own’ a portion of your property.

For newly constructed homes, this incentive will be set at 10%.

Now, let’s talk numbers. 

Scenario 1: With First Time Home Buyer Incentive Plan

Purchase price: $400,000

  • Down payment (assuming 5%): $20,000
  • Incentive plan contribution: $20,000
  • Mortgage insurance: $11,160

= Mortgage amount: $371,160 with Monthly payments of $1,783

(Based on today’s best 5-year fixed rate at nesto of 3.14%)

Scenario 2: Today’s Situation Without the Incentive Plan

Purchase price: $400,000

  • Down payment (assuming 5%): $20,000
  • Mortgage insurance: $15,200

= Mortgage amount: $395,200 with Monthly payments of $1,899

Over the course of 25 years, assuming the rate remains at 3.14%, this means the First Time Home Buyer Plan will help save $34,800 in mortgage payments! Not bad. But remember that you’ll have to pay the CMHC back eventually.

Who is eligible for the First Time Home Buyer Incentive Plan?

Criteria required to qualify for this incentive:

  • Maximum household income of $120,000
  • Be able to come up with a five percent down payment — the minimum requirement for an insured mortgage with the CMHC
  • Mortgage value cannot exceed 4x total household income

Too good to be true?

The budget is far from clear on how much the buyer would owe; is it the same dollar amount the CMHC provided up front, or does the bill go up based on how much the house has appreciated in value? This should be clarified over the coming months.

When is this change taking effect?

The program is expected to be operational by September 2019.

Questions?

Each situation is unique. Our advisors are available to discuss these implications with you. Our calendars are always up-to-date and nesto is 100% free, with no engagement or obligations

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