First Time Buyers - Downpayment & Home Buyers Plan 2019
Updated: May 4, 2020
In March of 2019 the federal government offered help to young homebuyers, many of whom find it very difficult to afford to purchase in some of our more expensive cities. There were two measures targeted at first-time homebuyers:
Maximum Withdrawal from RRSPs was Increased (March 19 2019)
The simplest to understand is the $10,000 increase in the federal Home Buyers' Plan (HBP) maximum tax-free withdrawal from RRSPs to $35,000, effective immediately. This allowable withdrawal for first-time buyers will now also apply to people experiencing the breakdown of a marriage or common-law partnership who don't meet the usual requirement of being a first-time homebuyer.
What about the Downpayment Program (WATCH THIS VIDEO ⬇)
The CMHC First-Time Homebuyer Incentive
A $1.25 billion fund administered by the Canadian Mortgage and Housing Corporation (CMHC) over three years will provide 5% of the cost of an existing home and 10% of the price of a new home through what amounts to an interest-free loan to be repaid when the property is sold. The money would go to first-time home buyers applying for insured mortgages. The key stipulations & points are:
Users must have a downpayment of at least 5%, but less than 20%;
Household income must be less than $120,000
The purchase price cannot be more than four times the buyers' household income.
The government will own the percentage of increase in equity when you sell or refinance. (ie. if your value increases and you borrowed 5% you will have to pay back 5% of the increase in addition to your loan)
The loan is repayable at anytime
For example, say you’re hoping to buy a $400,000 home with the minimum required 5% down payment, which works out to be $20,000. With the new incentive, you could receive up to $40,000 (for a new home) through the CMHC. Now, instead of taking out a $380,000 mortgage, you’d need to borrow only $340,000. This would lower your monthly mortgage bill from over $1,970 to less than $1,750. The incentive is 10% for buyers purchasing a newly built home and 5% for existing homes.
Homeowners would eventually have to repay this mortgage at re-sale or refinance CMHC will share in any capital gain (or loss)-- receiving 5% or 10% of the sale price (not the purchase price).
These stipulations effectively limit purchases under this plan to properties priced at less than $500,000 ($480,000 maximum in insured mortgage and incentive, plus the downpayment), which is close to the national average sales price of $468,350 (which is down 5.2% from the average price one year ago). However, the national average price is heavily skewed by sales in Greater Vancouver and the Greater Toronto Area, two of Canada's most active and expensive markets. Excluding these two markets from the calculations cuts close to $100,000 off the national average price, trimming it to just under $371,000.
Under this plan you will still have to qualify under the federal stress test! The government is hoping to have the plan up and running by September.