CMHC incentive mostly aids condo buyers
July 18, 2019
Canada Mortgage and Housing Corp. (CMHC) will begin accepting applications September 2, 2019 for its new incentive program for first-time buyers.
If an applicant is approved for the incentive, the purchase transaction must close on or after November 1, 2019, according to CMHC which recently released further details on the program.
Details show the program may be of little assistance to new homebuyers in major cities because the maximum price limits are so low.
The First-Time Home Buyer Incentive helps qualified first-time homebuyers through the provision of an interest-free loan, which can be paid back from the proceeds of the eventual sale of the property.
Buyers can repay the incentive in full at any time without a pre-payment penalty but they must repay it after 25 years or if the property is sold—whichever happens first. The repayment of the incentive is based on the property’s fair market value.
For example, if the buyer received a 5 per cent incentive of the home’s purchase price of $200,000, or $10,000, and the home value increased to $300,000 the payback would be 5 per cent of the current value or $15,000. If the buyer received a 10 per cent incentive of a home’s purchase price of $200,000, or $20,000, and the home value decreased to $150,000, the repayment value would be 10 per cent of the current value or $15,000.
There are a few qualifiers to apply for the incentive:
• buyers need to have the minimum down payment of 5 per cent to be eligible;
• the buyer’s maximum annual income is no more than $120,000; and
• the borrowing is capped at four times the buyer’s income, to a maximum home value of $480,000.
First-time home buyers who meet the criteria can then apply for a 5 per cent or 10 per cent shared equity mortgage with the Government of Canada. The incentive applies to 5 per cent of the home’s value for the purchase of a resale home, but rises to 10 per cent for a new home purchase.
Due to the maximum home value of less than $500,000, the incentive is expected to mostly be used for condo purchases—few new detached houses are priced below $500,000. In many cases, the first-time buyer’s income may be half the $120,000 maximum, which would restrict their purchase to a new home worth $240,000.