First Time Home Buyers and The Federal Budget
Yesterday the Finance Minister announced this year's Federal Budget and considering that this is an election year a lot of us were anxiously waiting to see what changes there would be for first time home buyers. Unfortunately we were all a little disappointed. While there are some positive changes, in this brokers mind it's just not enough. But let's not dwell on what should be, let's take a look at the two changes they did make in an attempt to make home ownership more attainable:
1. Increasing the limits on the Home Buyers Plan (HBP)
The Home Buyers Plan is when as a first time home buyer you use your RRSP savings towards a down payment on a home. Previous to this budget the cap on the amount you can pull from your RRSP's has been $25,000 per person. In this new budget they have lifted that limit up to $35,000. Keep in mind that it does have to be re-paid and there are stipulations around who qualifies for this program. Click here if you would like to check those details out.
2. CMHC First Time Home Buyer's Incentive Program
This new program is somewhat similar to the one created by the BC Provincial Government a couple of years ago, of course that program ended in March of last year and there are some differences. Essentially what they are doing is putting together a pot of money that CMHC (Canadian Mortgage and Housing Corp) will use to provide interest free loans (maximum of 5% of a resale home and 10% of a new construction) to First Time Home Buyers who meet certain criteria:
Combined family income of $120,000 or less
Purchasers must have at least 5% down already and cannot exceed a down payment of 20% with the matching funds
The purchase price cannot exceed four times the buyers household income, so a maximum purchase price of $480,000
The home must be owner occupied, no rentals or investment properties
I know this one can be a bit confusing, so I will do my best to break it down. Say you're looking at buying a $350,000 home. You have $17,500 down payment of your own, 5%. CMHC will then match that $17,500 bringing your total down payment to $35,000 or 10%. If you were purchasing with your 5% down you would end up with a mortgage of $345,800 ($350,000-$17,500 = $332,500 + $13,300 CMHC premium = $345,800) payments on that at today's rates and amortized over 25 years would be $1,725. Ok, now let's look at it with a matched down payment. You now have $35,000 to put down bringing your total mortgage amount to $324,765 ($350,000 - $35,000= $315,000 + $9,765 CMHC premium), payments on that at today's rates and amortized over 25 years would be $1,620.
So as you can see there are some savings to be had, with a larger down payment your CMHC insurance premium is lower and your monthly payments are lower thanks to a slightly lower mortgage amount. Keep in mind that that $17,500 does need to be repaid when you sell the home, but there is no interest cost associated with the loan.
Do I think this is enough to make housing more accessible to Canadians? No I do not. However, we have to work with what we've got and this is what they've given us. This program is still new to all of us in the industry so please bare with us while we learn and figure out how this can best be used to help you, our clients.
If you ever have any questions about the info covered here please do not hesitate to reach out and book a call so we can chat about all things mortgages!