Leading up to the latest federal budget release on March 19th, there was a lot of anticipation from homebuyers – particularly Millennials looking to purchase their first homes with concerns of affordability top of mind.
Two key first-time homebuyer perks were tabled in the budget. The first is a new shared-equity mortgage plan and the second is an increase to the existing Home Buyers’ Plan.
First-Time Home Buyer Incentive
Under this new incentive, eligible homebuyers who have the minimum down payment for an insured mortgage could apply to finance a portion of their home purchases through a shared-equity mortgage with Canada Mortgage and Housing Corporation (CMHC).
CMHC would offer qualified buyers a 10% shared-equity mortgage for a newly-constructed home or a 5% shared-equity mortgage for an existing home. Homeowners would eventually have to repay the incentive, possibly at resale, though it’s still unclear how this would work.
Since no ongoing payments would be required from the incentive, borrowers would have lower monthly mortgage payments. For instance, when purchasing a new $400,000 home with a 5% down payment and a 10% CMHC shared-equity mortgage ($40,000), the total mortgage size would be reduced from $380,000 to $340,000, lowering the borrower’s monthly mortgage costs by as much as $228 per month.
This incentive would be available to first-time buyers with annual household incomes below $120,000, and is expected to be up and running this summer. It’s estimated that 100,000 first-time buyers would be able to benefit from this program over the next three years.
Home Buyers’ Plan Withdrawal Increase
Budget 2019 also proposes to increase the Home Buyers’ Plan (HBP) withdrawal limit from $25,000 to $35,000 (or from $50,000 to $70,000 per couple), providing greater access to Registered Retirement Savings Plan (RRSP) funds to buy a home.
The HBP allows first-time buyers to withdraw funds from RRSPs, tax- and interest-free, to use towards purchasing a home. Because this program is considered a loan, the funds must be repaid to the RRSP within 15 years, with repayments starting the second year after the withdrawal.
This new RRSP limit would apply to withdrawals made after March 19th, 2019.
Do you have questions about how these budgetary announcements may be able to benefit you, or concerning your mortgage in general? Answers are a call or email away.