New mortgage program can help buyers afford first home
There’s a potential new path for people looking to afford their first home in Canada.
The federal government introduced a shared equity mortgage program, which it calls the firsttime homebuyer incentive, last month.
The program aimed at “lower borrowing costs of Canadians,” has garnered “tremendous interest,” says Lynn Power, account manager, client relations with Canada Mortgage and Housing Corp.
“They don’t have to borrow as much, and therefore, their interest-on-interest over 25 years is lower, and therefore the amount of insurance premium they pay is lower.”
All home purchasers in Canada with a down payment of less than 20 per cent require mortgage loan insurance through either CMHC, Genworth or Canada Guaranty.
“When you’re borrowing less, that premium is less,” Power says. “For the borrower, it becomes price minus down payment plus the mortgage insurance fees.
That’s what they have to borrow.”
For instance, to purchase a $300,000 home, the purchaser needs a minimum down payment of five per cent ($15,000) to qualify for pre-approval on this mortgage. As a result, they would borrow $285,000 plus insurance fees.
If a first-time homebuyer chooses to use the new shared equity mortgage program, says Power, “the government will match that, but will now have a share in (the home).”
The program offers five or 10 per cent for a new home and five per cent for a resale purchase.
Using the aforementioned example, the government will hold a five per cent share in the home. In that case, the buyer would only need to borrow $270,000 plus insurance fees, rather than $285,000 plus insurance fees.
“Therefore, everything costs less,” says Powers. “My mortgage insurance fees are less and the bank borrowed from the bank is less.
“Interest is less, everything is less,” she adds. “Therefore the objective is reached.”
The government’s share in the first-time owner’s home can be paid back anytime prior to or at the 25-year mark. If the title is discharged — which may include selling the home, or paying off its mortgage — prior to 25 years, the share must be paid back at that time.
For people who received five per cent through the program, the amount paid back is five per cent of the value of the home at the time the title is discharged. Those who receive 10 per cent must pay back 10 per cent of the home’s value.
To qualify for the incentive, the borrower must have their minimum down payment, and a maximum qualifying income of $120,000 annually.
“I really encourage people to get in front of their mortgage professional and sort this out upfront as part of the pre-approval process,” says Power.
For more information — including a place to apply, and calculator to determine an individual’s maximum purchase price and what they could receive as an incentive — visit placetocallhome.ca