How the CMHC Proposed Change Helps AND Hinders!

Published on 21st March 2019

It’s springtime! We now have more light and the snow is melting – ah-mazing! To our surprise, the Canada Mortgage and Housing Corporation (CMHC) has also brought us some lovely Springtime news.

The Home Buyer Incentive – The hot-off-the-press news from CMHC is that, as part of the 2019 Federal budget from the Liberals, the CMHC has set aside $1.25B over 3 years for first-time home buyers to assist with the purchase of their new homes. Yes, that’s a B after the $1.25 for Billion! As part of their proposed Home Buyer Incentive Plan, CMHC plans to assist first-time home buyers who only have the minimum down payment of 5% by helping to finance 10% on the purchase of a newly built home OR 5% on a resale home.

To qualify, applicants must have an annual household income of less than $120,000. The program also caps out at 4 times the applicant’s annual income (i.e., the mortgage amount and the CMHC contribution cannot be more than $480,000).

Home Buyers Plan Refresh – Furthermore, changes to the RRSP Home Buyer’s Plan withdrawal, without penalty, increased from $25,000 to $35,000, which is effective March 19th, 2019. It’s about time this program got a bump (it’s been $25K for the past decade!). The $35,000 must be repaid in 15 years.

Those are the major changes. I knew something was coming down the pipeline in April, but holy smokes, this proposed policy seemingly came out of nowhere. If you’re one for examples to understand how this proposed change would work, then take a look at the example below.

The Scenario – Let’s say Bob is our first-time home buyer.

Bob goes and purchases a $400,000 condo.
Bob makes an annual income of $100,000
Bob can only put down 5% ($20,000)
CMHC pitches in 10% ($40,000)
Total down payment between Bob and CMHC is 15% ($60,000)
The mortgage amount is $340,000
Total of the CMHC contribution ($40,000) plus the mortgage amount ($340,000) of $380,000 is less than Bob’s program cap of $400,000
Allegedly, this is supposed to help reduce the monthly payments that Bob has to make. Effectively, this allows him to qualify for more credit under this new proposed policy, which in theory should “help” with the initial purchase (help is in quotation marks because it’s unclear how much this would help the entire market).

It is important to note that this contribution from the CMHC is not a gift, but rather it is an interest-free loan from CMHC and you will have to repay CMHC at some point in the future. When that is in the future is still to be announced – stay tuned!

The Low Down – Okay, so let me dissect this for you a bit further.

To me, it sounds like this proposed change is targeting the millennials who are having a hard time purchasing their first property without parental help. This may help those who are very close to purchasing their first home but have a hard time saving up for that last bit. However, this seems like a band-aid fix for a larger problem (supply) rather than a great idea. It is also overly convenient that the Liberals are making this change just a few months prior to the election, as they are obviously targeting the “largest voting demographic this year” (i.e., the millennials… hmm, coincidence?)

I’m all for helping those who can’t afford to be a homeowner, but I can tell you that without fixing the larger supply issue at hand (i.e., the root cause of the problem), this move doesn’t actually help anyone. The entry-level product, especially in the downtown core, is flying off the shelves with multiple offers right now. This new change only opens up the flood gates even more, as first-time home buyers who qualify for the Home Buyer Incentive can now also bid on this entry-level property.

The Wrap – So when this proposed change gets passed, we’re going to see some entry-level product price jumps – “unintentionally,” as with most government policies. The entry-level product is exactly what my cash flow condo clients are targeting. So perhaps now is the time to consider getting in the door with your investment in these entry-level products before prices “unintentionally” go up. Buy now and enjoy additional anticipated appreciation.

If you’re looking to get into the cash flow condo market, reach out to Zhen at 416-436-9436 before prices inevitably go up from here – you can “thank” the new CMHC policy for that when it happens!

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