Author: Nathan Hwee, Lawyer at Chinneck Law
In Budget 2019, the Canadian government has introduced the First-Time Home Buyer Incentive which affects first-time home buyers applying for insured mortgages with the Canadian Mortgage and Housing Corporation (CMHC).
The new CMHC Incentive intends to lower first-time home buyers’ borrowing costs by reducing the mortgage amount without increasing the down payment amount paid by first-time home buyers. Under the Incentive, CMHC will provide funding to first-time home buyers that will effectively act as a second “down payment”. CMHC will not require first-time home buyers to make monthly payments to repay CMHC for the Incentive amount. Instead, they will repay CMHC the Incentive amount at a later date, such as when they sell the home. Budget 2019 does not provide details regarding the repayment requirements of the Incentive amount, however, more details are expected to be released later in the year.
The Incentive amount depends on whether first-time home buyers are purchasing a newly constructed home or an existing home. For a newly constructed home, CMHC will fund 10 percent of the purchase price as the Incentive amount. For an existing home, CMHC will fund 5 percent of the purchase price as the Incentive amount.
For example, if a first-time home buyer purchases a newly constructed home for $400,000, the Incentive amount would be $40,000. If the first-time home buyer pays the minimum required 5 percent down payment of $20,000, the insured mortgage amount will be $340,000. Without the CMHC Incentive, the insured mortgage amount would be $380,000.
To be eligible for the CMHC Incentive, home buyers must:
1. Be a first-time home buyer;
2. Pay a minimum down payment of 5 percent of the purchase price;
3. Have household incomes under $120,000 per year; and
4. Have the insured mortgage and Incentive amount less than four times the participants’ annual household incomes.
The Canadian government expects the CMHC Incentive to be operational by September 2019.
Another benefit for first-time home buyers in Budget 2019 is the increase of the Home Buyers’ Plan (HBP) amount.
Before Budget 2019, first-time home buyers could withdraw a maximum of $25,000 from their Registered Retirement Savings Plan (RRSP) to finance the purchase of their home without having to pay tax on the withdrawal. In Budget 2019, first-time home buyers can now withdraw a maximum of $35,000 tax-free as long as they repay it within 15 years. This increase to the HBP withdrawal limit is available for withdrawals made after March 19, 2019.
Disclaimer: While every effort has been made to ensure the accuracy of this article, it is not intended to provide legal advice. Individual situations will differ and should be discussed with a lawyer. For specific technical and/or legal advice, please contact Chinneck Law.