2019’s Federal Budget was highly anticipated in the mortgage world! The Government announced 2 changes to the mortgage landscape with:\n\n\n\nAn updated Home Buyers’ Plan (HBP),\nA new First Time Home Buyer Incentive Plan.\n\n\n\nHere is a summary of the changes:\n\n\nWhat changed with the Home Buyer’s Plan (HBP)?\n\n\nThe 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!)\n\n\nCanadians 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!)\n\n\nWhen is this change taking effect?\n\n\nNow. According to the official publication of the Federal Budget, this would be available for withdrawals made after March 19, 2019.\n\n\nWhat’s the new First Time Home Buyer Incentive Plan?\n\n\nFor 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.\n\n\nFor newly constructed homes, this incentive will be set at 10%.\n\n\nNow, let’s talk numbers. \n\n\n\nScenario 1: With First Time Home Buyer Incentive Plan\n\n\nPurchase price: $400,000\n\n\n\nDown payment (assuming 5%): $20,000\nIncentive plan contribution: $20,000\nMortgage insurance: $11,160\n\n\n\n= Mortgage amount: $371,160 with Monthly payments of $1,783\n\n\n(Based on today’s best 5-year fixed rate at nesto of 3.14%)\n\n\nScenario 2: Today’s Situation Without the Incentive Plan\n\n\nPurchase price: $400,000\n\n\n\nDown payment (assuming 5%): $20,000\nMortgage insurance: $15,200\n\n\n\n= Mortgage amount: $395,200 with Monthly payments of $1,899\n\n\nOver 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.\n\n\n\nWho is eligible for the First Time Home Buyer Incentive Plan?\n\n\nCriteria required to qualify for this incentive:\n\n\n\nMaximum household income of $120,000\nBe able to come up with a five percent down payment — the minimum requirement for an insured mortgage with the CMHC\nMortgage value cannot exceed 4x total household income\n\n\n\nToo good to be true?\n\n\nConsider 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.\n\n\nWhen is this change taking effect?\n\n\nThe program is expected to be operational by September 2019.\n\n\nQuestions?\n\n\nEach 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\n\n\nOther articles in this guide: “How Much House Can I Afford?”\n\n\n\nWhat’s an Ideal Debt-to-Income Ratio for a Mortgage? \nDo You Understand Your Credit Score?\nHow Much Do You Need for a Down Payment in Canada?