The 2019 Federal Budget has been released and there are some excellent new programs affecting real estate, specifically for first-time buyers.
Let’s sum it up for you:
The new Shared Equity Mortgage option, available through the Canadian Mortgage and Housing Corporation (CMHC), is HUGE. This isn’t for everyone but those who can benefit from it will REALLY benefit from it. CMHC is providing two options with a 5% and a 10% Shared Equity Mortgage for resale and new construction homes respectively.
Here’s how it works:
Let’s say you’re buying a $500,000 RESALE property, you have the minimum requirement of five percent down ($25,000) and opt to use the program as a first-time buyer. CMHC will provide an additional five percent, bumping your deposit from $25,000 to $50,000, saving you approximately $120 monthly on the mortgage payments. The loan comes at zero interest (sorta — see how they make money below) and no repayment required until refinancing or selling.
HOW THEY MAKE MONEY
If you sell 3 years later for $600,000, you owe CMHC the principal amount of the loan ($25,000) plus their proportionate share of equity (appreciation). In the case of the resale home example above– five percent ($100,000 appreciation multiplied by five percent –> $5,000) for a total of $30,000 from the proceeds of your sale, netting you $70,000 before other expenses. If you did this on a new-construction home it would be the same calculation at 10%.
HOW TO QUALIFY
How do you qualify? Your household income must be less than $120,000 and the insured mortgage must be less than four times your total household income. It’s a little confusing; consult with your accountant or real estate agent for more details.
For 10 years, first-time buyers have been able to withdrawal up to $25,000 of their RRSPs for the purpose of a downpayment on a house. This loan gets paid back over 15-years, interest and tax-free and if there is a second owner who’s also a first-time buyer, they can also use this program, for a total of up to $50,000. The 2019 budget has increased the individual limit by $10,000 to $35,000 or $70,000 for couples
Another great addition to the first-time Buyer RRSP program is that not only can first-time buyers take advantage of it, couples (married and common-law) going through a separation/divorce will re-qualify for the program for funds withdrawn after 2019. This is a game changer. We frequently work with couples going through marital breakdowns and it’s never fun, especially financially. Having the ability to withdrawal up to $35,000 tax and interest-free from an RRSP at this stage in life will make such a big difference! The new rules weren’t explicitly clear as to how somebody qualifies, what paperwork must be filed, what stage of the separation or divorce they must be in, what proof need be provided, etc. but we expect more on this soon.
Hear more about the 2019 Federal Budget in episode 18 of KT CONFIDENTIAL and make sure you follow the podcast on whichever platform you use.