New mortgage rules

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We get it. Small apartments and noisy neighbours can be a drag. And with student loans and an entry-level salary, home ownership can often seem out of reach. But, here’s some good news. With the recent changes to Canada’s First-Time Home Buyer Incentive (FTHBI), home ownership just became a lot more real.

We sat down with Nigel Wyles, Branch Manager of Bayview Credit Union to chat about Canada’s First-Time Home Buyer Incentive and how Canada’s Housing and Mortgage Council (CMHC) is empowering young(er) Canadians to purchase their first home.

What you need to know about the First-Time Home Buyer Incentive

Earlier this year, the Federal Government announced that CMHC will give first-time home buyers up to an additional 10 percent loan (on top of the original five percent) to help pay for a buyer’s first home. First-time buyers will now have the chance to receive an interest-free loan, which can decrease mortgage payments and help get first-time into their own home that much sooner.

It all begins with a Shared Equity Mortgage (SEM).

A what?!

Basically, the government lends you money in exchange for a shared investment in your home. It also means that CMHC essentially owns up to 10 percent of your home—and the loan can be paid back to CMHC anytime in the 25-year period between purchasing and living in the home.

Like the sound of a more manageable mortgage? Here’s how to apply.

Beginning the process to apply for Canada’s First-Time Home Buyer Incentive can feel a little overwhelming. That’s why we recommend sitting down with a financial advisor—they review each individual case and walk through the application to CMHC with you.

This sounds great and all—but are you eligible to apply?

The incentive is not just for those who have never owned a home. If you haven’t owned a home in at least four years you could also be eligible to receive the incentive. But there is a catch—you need to have an annual household income under $120,000 and the home you are looking to buy can’t be more than four times your qualifying income. Meaning if you have a household income of $120,000 the maximum mortgage you can receive is $480,000.

If you qualify for the property, your financial institution can work with CMHC to lend you the money—taking the process from stressful to stress-free.

Why apply? Pros vs. cons

Millennials have struggled with the financials of purchasing a home. But with the new incentive, it’s an idea that is well within reach. Being able to have a lower mortgage is a definite perk of the incentive. And most importantly—no more renting.

FTHBI Pros:

  • No interest fees on the CMHC loan
  • No regular or scheduled payments on the CMHC loan
  • The loan can be paid at anytime in the 25-year period or at the time you sell your home
  • No pre-payment penalty

FTHBI Cons:

  • The more your house value increases, the more money you must pay back
  • If you don’t pay the loan down and decide to sell, you’ll have to dish out a large amount of money at one time
  • You must be able to meet the down payment requirements

It may seem like the dream scenario but be careful—how much your house is worth when you decide to sell will determine how much money you need to pay back. The lower the value of your house, the smaller the amount you will have to pay back. The higher the value of your home, the more you will have to pay back to CMHC.

Not sure if this is right for you?

Talk to your friends to see if they’ve participated in the incentive, read articles from credible sources (hi!), and check in with an advisor. The more information you can gather now, the better off you’ll be. Home ownership isn’t for everyone! Check out this segment on Your Two Cents to see if homeownership is right for you.

We know purchasing a home is a big deal—and we’re here to help. Still wondering if this applies to you? Reach out to your local credit union to learn more about Canada’s First-Time Home Buyer Incentive.