Pat Miazga

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New details emerge about federal First-Time Home Buyer Incentive

Global News has learned the government’s First-Time Home Buyer Incentive will launch on September 2, days before an expected fall election call.


The new program was announced in the federal budget last March, but some of the key details about how the program would work were left out.


Under the plan, the government would help some first-time buyers by advancing an interest-free loan of up to five per cent of the purchase price of an existing home, and up to 10 per cent of the cost of a new home. This would allow the homebuyers to take out a smaller mortgage and keep their monthly payments lower.


Buyers must repay the incentive after 25 years or if the property is sold, and they can repay it at any time without any penalty.


Global has learned that if the house price goes up, the government will get a percentage of the price increase. And if the house price decreases, Ottawa will shoulder a percentage of the loss.


For example, a new house that is purchased for $100,000 could qualify for a 10 per cent interest-free loan worth $10,000. If the home was later sold for $110,000, the home buyer would need to repay $11,000.


The government says the incentive means that a home that is purchased for $485,000 would save $3,327 a year on mortgage payments.


There are a number of caveats to the program. Buyers must have a household income below $120,000 a year. The amount of the insured mortgage plus the CMHC incentive would be capped at four times the homebuyers’ annual incomes, or up to $480,000. That means the most expensive home you can hope to buy under the plan would be worth somewhere between $500,000 and $600,000, depending on the size of your down payment.


The government has allocated $1.25 billion over three years for the First-Time Home Buyer Incentive. Social Development Minister Jean-Yves Duclos will announce the new details Monday morning in Mississauga.


Critics say this program will not do much to help buyers in Vancouver and Toronto, where average home prices sit at $925,000 and $765,000, respectively. But the government is confident it will help homebuyers even in Canada’s biggest cities.


Having a sharp income cutoff also means that homebuyers with incomes just under $120,000 would have a significant advantage over those just above the threshold, who would not qualify for the CMHC incentive.


After the budget was announced, TD economists estimated the new mortgage incentive could actually help push up home sales and prices by between two and five per cent by 2020. But their calculation also included the expected effect of another budget measure that would allow first-time homebuyers to use up to $35,000 — rather than $25,000 — of their funds held in a registered retirement savings plan (RRSP) for a home purchase without tax consequences.


With files from Erica Alini

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