In the wake of the 2019 Budget Announcement, I find myself wondering if the Affordable Housing Incentive is good policy or just politics? Since the inception of Jan. 1 2018 “Stress Test” we have seen the struggle to qualify for mortgages countrywide. This didn’t just affect the major centers such as Toronto and Vancouver, its dark aurora has cast itself out to the more rural parts of the country where property values may not be as high, but income relativity has made it equally as hard to qualify. I live and operate my Mortgage Brokerage from Lindsay ON (City of Kawartha Lakes) and depending on the repayment terms, I am feeling like this may complicate future borrowing for individuals that accept it or may not make a dramatic difference for them today… I understand that much of the changes are widely unknown yet, but it’s still worth considering the practicality of what is proposed.
When reading the parameters around the new changes, they have an eerie resemblance to a program that already exists in the City of Kawartha Lakes and a lot of other municipalities in Ontario.
Homeownership 10% Down Payment Assistance Program. “The Homeownership Program provides up to 10% in down payment assistance to eligible applicants. Approved applicants would then be provided 30 days to supply proof of financing, an agreement of purchase and sale as well as an acceptable home inspection report. To qualify for the program, applicants must be renting in the City of Kawartha Lakes or the County of Haliburton, be at least 18 years old, have a gross household income at or below $76,100 and be eligible for financing from a financial institution. The selling price of the home must be at or below $363,127. Applicants must also be a first time home buyer and the home must be located in the City of Kawartha Lakes or the County of Haliburton.
The kicker with this “interest free and potentially forgivable loan” is that if you sell the house or rent it out, you are required to pay back the original investment of 10% + 10% of the capital gain on that property. I have seen folks use this program and with their hard work, money and time renovating the house along market appreciation, the value go up on their property in excess of $200,000 and now have to pay $20,000 back to the municipality along with the original investment received. Not knocking that program at all as it has helped many of our residents get into their first home, as in most cases the only thing holding them back was saving up the down payment in a market that has inflated rental rates.
Now, getting back to the New Federal Policy, they have not yet explained (or likely even discussed) the repayment terms but my best guess will be that it’s along the same lines and the provincial program. Using the highlights from Geoff Lee’s blog, see proposed “Share Equity” idea.
CMHC First Time Home Buyers Incentive Plan
-This would give first time home buyers the ability to share the cost of buying a home with CMHC
-For existing homes – the incentive would provide up to 5% (funding/equity sharing) of the PURCHASE PRICE
-For newly constructed homes the incentive would provide up to 10% (funding/equity sharing) of the PURCHASE PRICE
-Funding/Equity sharing means that CMHC would cover a percentage of the purchase price
Example:
o $400,000 purchase price, 5% down payment ($20,000), AND 5% CHMC shared equity mortgage ($20,000), the size of the insured mortgage would be reduced from $380,000 down to $360,000 which would lower the monthly payment amount for the first time homebuyer
To qualify for the program:
o $120 max household income
o Cannot borrow more than four times their annual household income – making max purchase price approx. $505,000
o $100,000 household income would mean max $400,000 mortgage in order to use this program.
So if the first-time homebuyer still needs to have a minimum 5% down of their own resources (unlike the local program discussed above), and most will be buying a resale home, their proposed fix for this demographic is to share the 5% cost of the house? Using the example above, it would reduce the borrowers monthly payment by approximately $120 per month or a little more than 6.00% reduction in monthly mortgage payment. Saved money each month is certainly helpful, but will this be something that we look back on in years to come as a real difference maker? Could there have been other ways to assist our first time homebuyers? Did we get our fair chunk of consideration? Whatever the right answer is, as we await the great reveal of repayment terms, we as Mortgage Brokers/Agents need to be cautiously optimistic that this will help our clients but understand that it may negatively effect some too… I hope for our clients sake this turns out to be good policy and not just politics. I await the reveal.
Courtesy of Dustin James – AMP – DLC Premier Financial Group based in Lindsay, ON.