If you haven’t already heard, the Federal Liberal government and the Canada Mortgage and Housing Corporation (CMHC) announced that starting Sept. 2, first-time homebuyers with the minimum down payment required to qualify for a home, and with a household income of up to $120,000, will be eligible for a five per cent loan on a resale home or a 10 per cent loan on a newly constructed one.
CMHC will provide a hand-out of sorts to increase a first-time homebuyer’s downpayment and help give them the edge they need to enter the market.
There’s no doubt that this new initiative will help some first-time homebuyers, but at what cost?
Well, the loans are interest-free and need to be repaid within 25 years or when the house is sold — but CMHC will benefit from the eventual appreciation of the real estate. So, that 10 per cent they helped you out with on a $280,000 home (Translation: $28,000 deposit) may very well turn into a $30,000-plus repayment come resale time. On the other hand, should the home depreciate in value, the CMHC would also experience a loss.
The timing for the launch is interesting, given Canadians head to the polls on Oct. 21.
One can’t help but note that this incentive comes across as a little tone deaf given the current affects of the stress test.
Is this new incentive just a distraction to the bigger issues first-time homebuyers are facing? Well, time will tell.
Till then, we sit and wait.