Here is an overview of the program that was launched by the Federal Government on September 2, 2019.
So, we are clear, this is a shared equity program with the Federal Government. They are willing to loan, not give, up to 5% (on an existing home) or 10% (on a new build). This will go towards the down payment of your primary residence. You still do need to come up with the first 5%. They will upon sale, refinance or end of 25-year amortization, require repayment. If the home has increased in value, you will have to payback the 5% or 10% plus their portion of the profit on that amount.
The point of the initiative is to make the property you want more affordable by lowering the monthly payment and is not meant to upgrade your spending power!
What are the parameters of the program?
- Need to be a Canadian Resident
- Not owned a home within the last 4 years (if you were in a marital breakdown situation and owned a home this would not apply to you, you would qualify for the incentive)
- Household income must be less than $120,000
- Maximum mortgage that would be considered can be no more that 4x household income (i.e.: $480,000) The purchase price can be higher than this but the mortgage cannot exceed this number
- All the same mortgage qualification guidelines apply (i.e.: criteria for income, down payment source, affordability ratios, etc.)
- Need 5% of the down payment and it cannot be borrowed.
- As there is a declining scale on the amount of premium you pay in default mortgage insurance based on your down payment, you would save the CMHC amount paid as the incentive would take you to the next tier (or possible 2 tiers on a new build)
- Zero interest is charged on the funds and no payments on the amount contributed
- Because of the savings in premium and the additional down payment, you would have a net monthly savings on your overall mortgage payment.
- The Government has an ownership stake in your home, their regulation can change at anytime
- No porting of the incentive or mortgage (As you will be selling your home)
- Additional lawyer fees at closing to register this second mortgage.
- Additional fees if switching mortgages to another lender upon renewal.
How do I pay this amount back?
There are no partial payments available via this program. The options to pay this out are:
- Make the payment in full and consider the new value of the property so the government gets their proportional contribution. An appraisal would be required
- Sell the property
- Pay back the loan after the 25-year amortization period is complete
- Refinance the property
Can I refinance my property and keep the government second in place?
Yes, you can if the total Loan to Value of the first mortgage and second mortgage do not exceed 80%
My take, I think there could have been a better use of taxpayer’s dollars then creating a whole new department. Two ways that would have better helped the first-time home buyer would have been:
- Bring back the 30-year mortgage (moving from a 25 year to a 30 year would save you approx. 10% on your monthly mortgage payment)
- Adjust the stress test (notice I didn’t say get rid of it), the government has moved the prime rate 5 times since introducing the stress test but has not amended the stress test itself, so Canadians are really qualifying at an additional 1.25%
Both these would have cost us nothing and in my opinion had a bigger/quicker effect for Canadians.
However-The program is here now and if you are interested or have some more questions you should speak to a trusted professional to see if this would be an overall benefit for you and your family.
“Nothing is impossible, the word itself says I’m possible!”