New Details Emerge On Canada’s First-Time Homebuyer Incentive

On the eve of Canada’s federal election this fall, the Trudeau government plans to help more Canadians buy their first homes by picking up a portion of their mortgage costs and increasing the amount they can borrow from their retirement savings for a down payment.

First-Time Home Buyer Incentive Program

Millennials and first-time buyers would see the government pick up part of the costs of their mortgages to lower their monthly payments, with the amount of help determined by their incomes and whether they’re buying an existing or newly built home. 

The new program, called the ‘First-Time Home Buyer Incentive,’ will be launched in September and be available to first-time buyers with annual household incomes of as much as $120,000. The amount of the insured mortgage would be capped at four times income, or up to $480,000.

CMHC Involvement

The Canada Mortgage and Housing Corporation will provide up to 10 percent funding for new homes and 5 percent for existing homes to reduce mortgage costs for low – to middle-income buyers. 

As an equity owner, CMHC would benefit from any gain in the house price, or potentially absorb a fraction of any loss. It’s not clear if the homeowner would repay the amount of the loan or the equity stake based on the home value when the property is sold. Those details will be worked out in coming months, according to finance department officials.

RRSP Loans

While the budget made no changes to mortgage stress tests or amortization terms, the government plans to raise the maximum amount a first-time buyer can withdraw from registered retirement savings plans to $35,000 from $25,000.

The government is also adding $10 billion over nine years to an existing program to entice more developers to build rental units. This additional funding would support 42,500 new units. It’s also allocating $300 million to launch a new housing supply challenge to encourage cities to open up more space for housing.

The new measures could increase the annual number of new homebuyers nationally to 140,000 from 100,000 by lowering monthly payments without creating higher household debt loads, said Finance Minister Bill Morneau, who was confident the measures won’t cause a spike in housing prices.

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