Budget 2019 proposed the new Canada Mortgage and Housing Corporation (CMHC) first-time home buyer incentive, which is a shared equity mortgage that would give eligible first-time home buyers the ability to lower their borrowing costs by sharing the cost of buying a home with CMHC. Funding of 5% of the home purchase price would be available, enhanced to 10% if the home is newly constructed. To be eligible, the following requirements must be met:
- the individual must be a first-time home buyer and the household income must be under $120,000 per year;
- the insured mortgage combined with the incentive cannot exceed four times the annual household income; and
- the minimum down payment for an insured mortgage must be made.
Regular repayments would not be required. Details of the ultimate repayment were not provided, although repayment when the home is sold was noted as an example in the Government documents. The Budget papers were also unclear on whether CMHC would share in appreciation, or any decline, in the house value, which is typically a feature of shared equity mortgages.
Many commentators are reporting that this would only assist on the purchase of homes valued at up to $480,000 (4 x $120,000). However, based on the details released thus far, it appears that it is not the house price, but rather the total mortgage that is limited to $480,000. For example, where a $25,000 down payment is paid (assuming 5% down), a house valued at approximately $500,000 could be purchased (assuming family income was just under $120,000, and the mortgage totalled $475,000).
It is uncertain whether there will be a cap on the maximum deposit or house value. More details will be released later this year, with the program expected to be operational by September 2019.
The Budget also announced financing to work with the broader financial community to assist third party providers of shared equity mortgages in scaling up their business and to encourage new players to enter this market.
Action Item:
Watch out for details of this new incentive to be released in the fall.
