Dernière mise à jour le November 13th, 2020

If you are planning on buying your first property, the federal budget tabled last April comes with a nice gift for you! As of November 1, 2019, you could get a loan from Canada Mortgage and Housing Corporation (CMHC) equivalent to 5% or 10% of the value of the home, without any interest or a monthly refund. Let’s take a closer look at this new advantageous measure.

Please note that this article was written prior to CMHC’s actual implementation of the subsidy. So, for writing purposes, I read various articles on the subject, went to CMHC’s website and called CMHC a few times. There have been times where I have received conflicting answers, so it is therefore possible that some information is incorrect. Once the measure is officially implemented, it will be easier to explain the details with certainty.

 

How does CMHC’s subsidy work?

The first-time homebuyers’ incentive is a type of loan offered by CMHC. The federal agency will lend eligible buyers a percentage of the value of the property: 5% for an existing building or a prefabricated home and 10% for a new build.

The loan does not have to be repaid every month and will therefore reduce the monthly mortgage payment of those who can benefit from it. Here is an example to help clarify things.

You buy a first property (existing build) worth $300,000.  You make a  5% down payment  ($15,000) for an amount of $285,000. With a 5% down payment, you have a 4% mortgage insurance premium to pay, which is $11,400. You would normally have taken out a mortgage of $296,400, which is equivalent to a monthly payment of $1,479.84 if the loan is spread over 25 years at an interest rate of 3.5%.

With the new measure, CMHC lends you 5% of the value of the property, or $15,000. So, the amount to be insured is $300,000 – $15,000 – $15,000= $270,000. With a down payment of 10%, the cost of the CMHC premium is 3.1%, which represents $8,370. Your mortgage is reduced to $278,370. The monthly payment drops to $1,389.82, a saving of approximately $90 per month.

Comparison of scenarios with or without CMHC’s new measure.

With the first-time homebuyers’ incentive

Property Value: $300,000
Down payment (5%): $15,000

Incentive to buy a first property (5%): $15,000

Borrowed Amount: $270,000
Mortgage Loan Insurance Premium (3.1% x $270,000): $8,370

Mortgage: $278,370
Monthly payment (over 25 years at 3.5%): $1,389.82

Without the first-time homebuyers’ incentive

Property Value: $300,000
Down payment (5%): $15,000

Borrowed Amount: $285,000
Mortgage Loan Insurance Premium (4% x $285,000): $11,400Mortgage
Loan: $296,400
Monthly payment (over 25 years at 3.5%): $1,479.84

Repayment of the down payment subsidy

The loan must of course be repaid at some point. In all cases, the loan must be repaid in full and in one fell swoop. However, CMHC announced that it would make arrangements with borrowers experiencing difficulty repaying them.

The refund can be made during one of these 3 times:

1. At the sale of the property

CMHC will collect the proportion of the loan based on the sale price. For example, if you sell your property for $350,000, you will have to pay 5% of that amount to CMHC, or $17,500.

In the event that the property is sold to a buyer who is related to the seller, the owner will have to provide a valuation report to determine the amount to be repaid.

2. Within 25 years

If you do not plan to sell your home, you will have up to 25 years to repay the loan, which will be interest-free but adjusted to the market value of the property. At this time, the borrower must provide a valuation report prepared by a qualified real estate appraiser. CMHC would be entitled to challenge the valuation report, in which case it would have to hire a qualified appraiser at its own expense.

3. At any time

At any time, the buyer may choose to repay the CMHC subsidy. In this case, the borrower should contact the number associated with the First-time Homebuyers’ Incentive at 1-877-884-2642. Again, the refund will be based on an assessment that must be provided by the owner.

Am I eligible for the down payment subsidy?

The government anticipates that up to 100,000 families will benefit from the homebuyers’ incentive measure. To qualify, you will have to meet the following criteria:

• Make a down payment of less than 20% of the price of the property
• Have a gross family income (before taxes) of less than $120,000
• Borrow a maximum of 4 times the eligible income. For example, if your family income is $100,000, you must borrow $400,000 or less to purchase your property.
• At least one of the couple’s two buyers must be considered a first-time buyer

The criteria for being considered a first-time buyer are very similar to those of the Homebuyers’ Plan (HBP).

The buyer or their spouse must not have owned their main residence over the last 4 years.

 

In conclusion

Personally, I think this is a great subsidy that will help many families become homeowners. It remains to be seen how this will be implemented. I also invite you to read this article which deals with various possible subsidies for the purchase of a property.

Now I would like to know, do you think this program will help you buy your first home?