First Time Home Buyer Incentive

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The Incentive

The Federal Government has come out with a plan to help get Canadians into the realm of home ownership. The plan has several proposed changes and a 1.25 Billion dollar budget over the next three years. The Canadian Mortgage and Housing Corporation (CMHC) is going to front 10% of a downpayment on a house up to $480,000 for first time home buyers for a stake in that ownership. This will be what is called a shared equity mortgage, as the CMHC will now have an ownership stake in your house. To qualify for this incentive applicants must be first time home buyers and the combined household income must not exceed $120,000 yearly. This incentive is essentially seen as a loan that is interest free and it can be paid when you sell the house or earlier if you wish. The Federal Government is hoping this plan will help get 100,000 new buyers the funding they need to secure home ownership.

Other Government Incentives

The Government also announced that first time home buyers can withdraw up to $35,000 from their RRSPs without having to pay a penalty. This is up $10,000 as the previous penalty free maximum withdrawal was $25,000. The rental market was not left out of affordable housing initiatives as it was also announced that $10 billion will be used to fund rental units. This is expected to bring in approximately 42,500 rental units by the year 2028 which should help bring the price of rental units down.

Expected Outcomes?

It is too early to tell how these new programs will affect the market and the financial situation of home buyers. It will be interesting to see if first time home buyers will owe back the initial 10% loan or if they will have to pay that, plus a percentage of the appreciation on their home. What if the buyers use this incentive to get into the market with a cheaper home only to renovate it and flip it quickly? Will there be penalties for paying the loan back early? If the buyers decide to pay back this loan before they sell how will they determine whether the property has appreciated or depreciated? If the market collapses will the buyers still owe the full amount or will it be pro rated based on the depreciated value?

There are a lot of questions that still need answered to fully understand how this new incentive will work. This program should definitely make housing more affordable for first time buyers in the short term however it could possibly turn into a financial burden down the road.

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