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

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

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    Published 20/03/2019 10:03 EST
    Updated 24/11/2020 15:11 EST

    2019’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.
    Here is a summary of the changes:
     

    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?

    Consider the CMHC incentive an equity investment from the Government(taxpayer). They will invest 5% to 10% upfront to assist with the purchase, and expect the same % or 10% to be paid back in the future. The homebuyer must repay the 5% or 10% incentive after 25 years, or when the property is sold, whichever comes first. The homebuyer can also repay the incentive in full any time before, without a pre-payment penalty.

    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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