The Government announced 2 changes to the mortgage landscape with:

A new First Time Home Buyer Incentive Plan,

An updated Home Buyers’ Plan (HBP).

Until we see the fine print from the Canadian Mortgage and Housing Corporation (CMHC) for further details, here is what we know so far.

What’s the new First Time Home Buyer Incentive Plan?

The First-Time Home Buyer Incentive promised in the 2019 Federal Budget will go live on September 2, the Canada Mortgage and Housing Corp. announced June 17th. The launch will land just a few weeks before the October federal election.

The program will offer first-time Canadian home buyers an interest-free loan, from a fund run by CMHC, matching the buyer’s down payment. This is up to five per cent of the purchase price on a resale home, or 10 per cent on a new-build or presale home.

What’s interesting for homebuyers is that no monthly repayments are necessary – but the CMHC will ‘own’ a portion of your property. The incentive helps qualified first-time homebuyers reduce their monthly mortgage carrying costs without adding to their financial burdens.

The government’s portion of the home shares in rising or falling values. The loan, plus any equity uplift on that portion, is repayable to the government upon sale of the home or after 25 years, whichever is sooner.

Sample Scenario 1: With First Time Home Buyer Incentive Plan

Purchase price: $400,000

Down payment (assuming 5%): $20,000

Incentive plan contribution: $20,000

Mortgage insurance: $11,160

= Mortgage amount: $371,160 with Monthly payments of $1,783

(Based on today’s best 5-year fixed rate of 3.14%)

Sample Scenario 2: Today’s Situation Without the Incentive Plan

Purchase price: $400,000

Down payment (assuming 5%): $20,000

Mortgage insurance: $15,200

= Mortgage amount: $395,200 with Monthly payments of $1,899

Over the course of 25 years, assuming the rate remains at 3.14%, this means the First Time Home Buyer Plan will help save $34,800 in mortgage payments! Not bad. But remember that you’ll have to pay the CMHC back eventually.

Who is eligible for the First Time Home Buyer Incentive Plan?

Criteria required to qualify for this incentive:

Maximum household income of $120,000

Be able to come up with a five percent down payment — the minimum requirement for an insured mortgage with the CMHC

Mortgage value + awarded down payment amount cannot exceed 4x total household income.

Related Article – Mortgages – What is the`Benchmark Rate`? 

What changed with the Home Buyer’s Plan (HBP)?

The government is increasing the amount that a first-time buyer can extract from an RRSP, without having to pay tax on the withdrawal. The current level of $25,000 is going up to $35,000. (Great news if you can afford it!)

Canadians who experience a divorce or the end of a common-law partnership will be able to participate in the Home Buyer’s Plan – even if they don’t meet the technical requirement of being a first-time buyer.

When is this change taking effect?

Now. According to the official publication of the Federal Budget, this would be available for withdrawals made after March 19, 2019.