The New Federal Down Payment Assistance Program
Will Bill Morneau’s bizarre new plan to ‘help’ first time homebuyers do us any good?
The program seems to be of questionable benefit, as it actually reduces what buyers can afford.
In the 2019 Federal Budget, Finance Minister Bill Morneau announced a new plan announced a new plan (read article here) to help first time homebuyers. The idea is to improve affordability by providing a government 5% Equity Interest (10% on new construction) on home sales: effectively an interest-free loan, with actual repayment terms undetermined, but due upon sale of the home.
Which sounds great, but the devil is in the details: it only applies to insured mortgages (5% – 20% down payment) and is limited to household incomes of less than $120,000. Moreover, the total amount of the mortgage cannot exceed 4x the total household income, and it is there that the whole thing falls apart:
Consider a family with total household income of $100,000, good credit, minimal debt, and 5% down payment. Making some reasonable assumptions (about strata fees and property taxes):
- they would qualify under the existing rules (including the onerous Stress Test) for a $500,000 home: $25,000 (5%) down payment and $494,000 mortgage (= $475,000 base mortgage + $19,000 CMHC fees);
- but in order to take advantage of the new program, they are limited to a $400,000 home (= 4 x $100,000)!
As it is currently proposed (final details won’t be announced until fall of 2019), only Buyers who are already well within their means can even participate, and unless the terms of repayment are extremely forgiving, one can’t help but wonder who will want to take “advantage” of this program. We note further that in a continuing low-interest rate environment, the cost of borrowing the 5% – 10% is going to be very low anyway, and will avoid the headache, uncertainty and legal cost of having an additional interest on Title. So what’s the point?
On the Bright Side:
Economists are becoming increasingly negative about the economic outlook and the government’s ability to do much about it: more and more are stepping on the “Prime Rate decrease” bandwagon, so don’t be surprised if it happens even before the summer, noting that the next announcements are April 24, May 29 and July 10.
While short term rates are relatively steady, the 5yr Fixed seems to be dropping by the hour. We are currently looking at 3.09% for both conventional base rate and high ratio, and by the time you read this it could have gotten even better!
HAVE QUESTIONS OR NEED GUIDANCE?
Feel free to contact me at any time.
You can even give me a call
right now at 604-317-9516.
Continued Brightness – Luckily the Home Buyers’ Plan (HBP) still works:
There is still the HBP which increased your RRSP withdrawal for first time buyers (or those who qualify) from $25,000 to $35,000. But as we all know, in Vancouver, that’s not a huge help. Though is two people are purchasing their first place together an extra $20,000 can give you that boost in your down payment to find something that ticks a few more of the preferred boxes.
If you are looking to buy or sell in 2019 or want to know more about the Vancouver real estate market, contact me here for professional and experienced guidance!
Do you know someone who needs help buying or selling a home? Refer a friend here
The real estate business is a relationship business that is built over time. I believe the greatest and most fulfilling business is built on referrals. So I would like to say that I am never too busy for your referrals. It would be an honour to serve a friend or family member of yours.