The Federal Government of Canada recently announced a first time home buyers incentive program.
The Government will give you up to 10% of the purchase price of your home in the form of equity. The idea is to help first time home buyers enter the market and reduce their monthly payments. I’ve done the research so you don’t have to. Take a look at the quick facts to help decide if the program is right for you. The program is live as of September 2, 2019. Contact me today and we can decide if the first time home buyers incentive program is right for you.
The government is essentially participating in the upside and the downside of your home. If your house goes up in value, the dollar amount the government owns has gone up. If the house goes down, the dollar amount the government owed has gone down.
Example 1, Your house value goes up
You purchase a house for $250,000 and receive 5% ($12,500) in shared equity from the government program. In 25 years, the house is now worth $350,000. The government still owns 5% of the home, now valued at $17,500.
Example 2, Your house value goes down
You purchase a home for $500,000 using 5% shared equity from the incentive program. The government owns 5%, representing $25,000. In 25 years the house has gone down to $350,000. The government still owns 5%, but that 5% is now worth $17,500
You must meet all of the following criteria:
Check out the self-assessment tool to see if you qualify
Up to 5% of shared equity (government loan) for first-time home buyers purchasing a re-sale home
Up to 10% for a new construction home
You pay back the 5% shared equity when the house is sold or after 25 years, whichever happens first.
No probably not. The anticipated amount of participants is 100,000. All of which are first time home buyers. Though we won’t know until we can analyze the data, the program is anticipating 0% pricing growth.
This program gives the government an investment in your house. Keep in mind that you must pay back the equity investment they make. It may be easy to forget in 25 years that the government paid for a portion of your biggest purchase.
Yes it’s true that the government loses when you lose. Their 5% also goes down when the overall value of the house drops. That being said, remember that in a 2008 scenario where markets plummet it’s much harder to actually sell when there is ample supply in the market. On paper it looks like the government is taking the same level of risk as you, but ask yourself if you’d really want to sell in a down market.
With quickly rising real estate prices, the intent of the program is to help first time home buyers enter the market. Keep in mind that you must still come up with the down payment (5% minimum on the first $500,000). The program also prevents you from putting 20% down. One of the rules is that the mortgage must be CMHC insured.
Your total mortgage loan will be lower. A key component of the incentive is to reduce the monthly cash flow burden of hefty loans on first time home buyers. Keep in mind that this isn’t “free money” you pay the equity back when you sell or after 25 years. Be smart here, it is never a good idea to over leverage yourself just because you can.