Share Equity First Time Buyer Incentive

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To Help First Time Buyers: the Liberal Government Budget included a First Time Home Buyer Shared Equity Incentive, and an increase in the RRSP Home Buyer Plan.

1. The First Time Home Buyer Shared Equity Incentive: One catch about this new initiative is that details of the plan won’t be out until sometime in September of this year, 6 months down the road. This may actually cause first-time buyers to wait it out until more details become available on how the plan will work.

The basic information: Through Canada Mortgage and Housing, the government will contribute 5% for a resale home and 10% for a newly built home to bring down the mortgage on a shared equity basis. The money is interest free and there is no monthly payment. You can choose to pay it back at any time or when you sell the home down the road.

What still needs to be unraveled is how the money is to be paid back. Will you simply be required to give the money back without interest or will the repayment include an equity share in the home’s value? With the second option, if for any reason the home’s value goes down will CMHC take a proportionate share of the loss?

To qualify the down payment required is 5%, the minimum for an insured mortgage and a household income of $120,000 or less. As well, the mortgage including the equity loan is restricted to 4 times the household income. So at an income of $120,000, the maximum mortgage loan would be limited to $480,000. A household income of say $100,000 would qualify for a mortgage loan of $400,000.

No Stress Test Relief or 30-Yr Mortgage

The hope prior to this announcement was that the government would ease up on the stress test and/or increase the amortization to 30 years from 25 years. Instead the stress test to qualify for a mortgage remains unchanged and the maximum amortization stays at 25 years. Here is a comparison in savings if the government had simply increased the amortization to 30 years vs. the Equity Plan of 5% & 10%:

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A Significant Savings with 30-Yr Plan

The 30-year mortgage gives a savings of $247.85 versus $119.88 and $239.65 per month. The 30 year versus the 5% assistance for resales ($247.85 - $119.88) gives a savings of $127.97 more per month. That would be especially significant for first-time buyers.

2. The RRSP Home Buyer Plan for first time buyers now allows a withdrawal of up to $35,000 per individual to purchase a home. Two first-time buyers in the same household can withdraw up to $70,000 for a downpayment to be repaid over 15 years.

People in marriage or common-law partner breakdowns will also be able to participate in the Home Buyer Plan as of this year.