Home-buyer incentive

The First-Time Home Buyer Incentive program to assist first-time home buyers was announced with the last federal budget.

The intention of the program is to assist qualified first-time home buyers to reduce their monthly mortgage payments.

A few more details about the program have been released recently.The program is scheduled to commence on Sept. 2, (barring any unforeseen circumstances) with the first closings on Nov. 1.

Here a few of the qualifiers for the program:

• you need to have the minimum down payment to be eligible (currently 5% of the purchase price)
• your maximum qualifying income can be no more than $120,000
• your total borrowing is limited to four times the qualifying income

The program effectively limits the amount of the mortgage and the CMHC incentive to $480,000, and with a 15% down payment, this would mean the value of the home cannot exceed about $565,000.

Buyers can receive an interest-free loan of up to 5% on an already-built home and up to 10% for a newly-constructed home.

The program will not be available for those with a down payment of 20% or more.

This is a loan and not a grant or subsidy. It’s not free money. The amount borrowed must be paid back at some point.

The incentive would be a second mortgage on the title of your property. The loan has no interest and does not require any regular principal payments.

You must repay the loan after 25 years or when you sell the house, whichever comes first. You can also repay the loan at any point before that with no penalty.

This is an equity share program which means CMHC will own a share of equity in the value of the home, regardless of whether the value of the property goes up or down.

When you sell your home, you will pay back the equity share the government has in your home. If your home increases in value, you will pay back more than you initially received under the plan.

If your home decreases in value, you will pay back less than you received under the plan.

This new program may help some first-time home buyers, but it is debt that has to be paid back.

As with any programs, it’s important to fully understand the pros and cons both for the short-term and also for the long-term so you can make an educated decision.

Participating in the program could actually reduce a buyer’s purchasing power is some instances. The program may assist in some areas of the country but not in areas with the higher average home prices.

There are still some unanswered questions regarding this incentive and no doubt will be more as the program rolls out on Sept. 2. Please reach out if you have questions.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.