For those dreaming of buying their first home, the 2019 federal budget did not go unnoticed. As property prices skyrocket in Canada, in Montreal and especially in the Toronto and Vancouver areas, here are three new incentives implemented by the Canadian government to help you afford property more easily.
The Canadian government is committed to helping first-time buyers, who are often just starting out in their careers and are parents to young children. First-time homebuyers tend to get discouraged by the down payments and significant monthly mortgages that come with purchasing a first home.
First-time buyers should always make a down payment that’s 5% of the property’s purchase price at minimum. But they could apply for a no-interest mortgage loan from the Canada Mortgage and Housing Corporation (CMHC) and receive 5% of the property’s value if it is an existing home and 10% if it is new. You will only have to repay this loan upon resale of the property.
“This measure has two goals: to improve property access for first-time buyers and to encourage developers to build more homes and condominiums in Canada, ensuring that this new financing option does not create a scarcity effect that causes prices to rise,” explains Louis-François Ethier, Product Manager, Mortgage Credit Solutions at National Bank.
This program will be offered to households whose income does not exceed $120,000 per year. In addition, the insured mortgage and the incentive amount cannot amount to more than four times the annual household income. The initiative should be implemented around September 2019.
A clear example
Take, for example, a couple who would like to buy a new condominium for $400,000. They have saved up a down payment of $20,000 (5%). Thanks to the CMHC initiative for the purchase of their first property, they receive $40,000 (10%) in financing. Their insured mortgage therefore totals $340,000. With a 3.5% mortgage rate and a 25-year amortization period, their monthly payment would be $1,745. Without this new incentive, it would have been $1,973, or almost $230 more per month.
Louis-François Ethier is convinced that the effects on the market will be almost immediate. “This measure was first created for cities like Toronto and Vancouver where condos often cost around $600,000 or $700,000, which doesn’t make them very accessible for first-time buyers,” explains Ethier. “But this will certainly also help first-time buyers in Montreal, even if prices are more affordable here.”
Thanks to the Home Buyers’ Plan (HBP), a first-time Canadian homebuyer can withdraw money from their Registered Retirement Savings Plan (RRSP) for a down payment. The 2019 federal budget increased the withdrawal limit from $25,000 to $35,000. For a couple, that means a total of $70,000 can be withdrawn from their RRSPs and used as a down payment to purchase property. Those who use the HBP always have 15 years to repay the amount withdrawn from their RRSP. Repayment must begin the second year following the withdrawal.
“There are so many first-time buyers who can benefit from the HBP, which is why it’s so popular,” says Ethier.
However, can first-time buyers really save $35,000 in their RRSP to use for their down payment? “This is something we have asked ourselves,” admits Ethier. “Saving $25,000 in an RRSP is already a feat for a first-time buyer. Many of them have just gotten out of school and have student loans to repay. We’ll have to wait and see.”
While the HBP is aimed at first-time buyers, the program is also available to people who have not resided for over four years in a home that they or their ex-partner owned.
As of January 2020, people who are divorced or separated will also be able to benefit from the HBP even if they do not meet the requirement of being a first-time buyer.
The HBP can be used for a second time—if the RRSP withdrawal has been fully repaid—by people who are separated or divorced and decide to buy new property or buy back their ex-partner’s share.
“I’m convinced that this will really help anyone who is separated to purchase property again soon. That’s because RRSPs, where you can grow your money is tax-free, are the savings tool of choice for many people,” says Ethier.
With the new and improved HBP that can now be used by people who are
separated, along with the CHMC’s interest-free loan for first-time
buyers, this is the perfect time to think about buying a first home.
And if you’re really serious about it, follow our guide
to buying your first home.
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