Effective September 2, 2019 (with the first closing on November 1, 2019), the $1.25 billion fund administered by the Canadian Mortgage and Housing Corporation (CMHC) over three years will provide 5% of the cost of an existing home and 10% of the price of a new home through what amounts to an interest-free loan to be repaid when the property is sold. The money would go to first-time homebuyers applying for insured mortgages. The key stipulations are:

• Users must have a down payment of at least 5%, but less than 20%;
• Household income must be less than $120,000;
• The purchase price cannot be more than four times the buyers’ household income.
• Only insured mortgages will be eligible, meaning this will be restricted to those with a down payment worth less than 20% of the purchase price.
• Buyers will not be exempt from federal “stress test” regulations.

For example, say you’re hoping to buy a $400,000 home with the minimum required 5% down payment, which works out to be $20,000. With the new incentive, you could receive up to $40,000 (for a new home) through the CMHC. Now, instead of taking out a $380,000 mortgage, you’d need to borrow only $340,000. On a standard mortgage at 3.5% interest, that translates into a monthly mortgage payment more than $200 lower than it would have been for the 25-year life of the loan. That’s more than $2,700 a year in potential savings.

Once the homeowner sells, they’re obligated to repay the CMHC. CMHC might share in any capital gain (or loss) — receiving 5% or 10% of the sale price (not the purchase price).

These stipulations effectively limit purchases under this plan to properties priced at less than $500,000 ($480,000 maximum in insured mortgage and incentive, plus the down payment). We are not huge fans of the incentive as we feel that having CMHC on title and sharing ownership of the property could lead to potential problems down the road. There are also additional legal fees associated with taking advantage of this program.