Is the New Incentive for First Time Home Buyers a Good Deal?

Posted by Robert McIntyre on Tuesday, September 3rd, 2019 at 11:20am.

The Federal Government under the CMHC program will be introducing a new incentive for First Time Home Buyers beginning on September 2, 2019 with first possessions on November 1, 2019.  The Incentive is available to buyers who have saved a minimum down payment of 5% to qualify for an Insured mortgage.

The Federal Government is offering to top up your down payment by 5% for resale homes or 10% for new homes.  The house price can be no more than $500,000.00 and household income must be no more than $120,000 per year to qualify. 

The benefit of the program according to the Feds is that the top up will lower your payments monthly because of the larger down payment amount. The loan is reported to be interest free and does not need to be paid back until or house sells or in 25 years.

So, what’s the catch?  This incentive is a buy in to your property by the Federal Government, instead of a loan they will take a 5% or 10% equity position in your home.

So what? You might say.  So, what this really means is the Government will be a shared owner in your home and will share any profit or loss you make from the home equal to the share they purchased with you when you purchased your home.

You may look at this and say who cares, my mortgage payments will be lower, and I can better afford my mortgage and my life.

Here is my take on this.

If you decide to spend your hard-earned money improving your home, for example finishing the basement or completing a complete renovation to increase the value of the property…. Guess what you just made money for the Federal Government.  If you sell the property and the value has increased the Federal Government will take 5% of the current value when you sell the home.

The Federal Government is not getting into this in my opinion to help First Time Home Buyers, I believe they are betting on property values increasing in value and this will be a money-making proposition for the Feds.  Remember they also pull the strings when it comes to monetary policy.  They can lower interest rates to see an increase in the Real Estate Market across Canada.  We saw the opposite effect when the Federal Government brought in the B20 policies in 2018 when they wanted to bring down the value of property across Canada. It was touted as a need to address the wildly escalating price escalation in Vancouver & Toronto, instead it had a whole scale negative effect on Real Estate Markets across Canada. 

If you decide you want to buy in to the incentive it would be best to make a concerted effort to get the Federal Government off your title long before the value of your property goes up.  Better yet, if you qualify for an Insured mortgage buy the house yourself and keep all your equity when it is time to sell it in the future.

This incentive is not an interest free loan, if it were the potential profit the Government could make in a hot Real Estate market would be considered to be criminal interest rates.  The only bonus is if the value of your home tanks the Government will take the hit along with you as they too will share the loss. Historically any investment held long enough will eventually appreciate and if you live in your home for 25 years the Feds will see a return on their investment. 

My advise, look at this program carefully before you decide to take the money.

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