Budget 2019 and the First Time Buyer
There is a lot of excitement surrounding the budget announcements from last week but let's delve a little deeper into the First Time Home Buyer (FTHB) programs that were announced/changed and their affect on #mortgages.
(Link to the announced budget at end of this post)
The First Time Home Buyers program for RRSP withdrawals has been increased from $25,000 to $35,000. This means new home buyers can access $35,000 of their RRSP contributions with no tax implications and pay it back over 15 years with no repercussions. The money must have been in your RRSP for 90 days before you can withdraw it. This is a good program if you have the savings to utilize it. I'm a strong supporter of the FTHB #RRSP plan and I love that they've increased the usable amount; however, I just don't see this as any sort of solution to the qualification or affordability issues facing FTHB's in today's market.
The government also announced a shared equity plan with CMHC. This program will allow buyers to receive an interest free loan from CMHC (and other not for profit lenders) for a percentage of their purchase price. For an existing home on the market it would be 5% and for a new home it would be 10%. The program will "include eligibility criteria to ensure that the program helps those with legitimate needs while ensuring that participants are able to afford the homes they purchase". The incentive will be available to FTHB's with household incomes under $120,000/year with a maximum amount of the insured mortgage + incentive not to exceed 4x the buyers income.
This will potentially lower the amount of CMHC fee you would pay, as well as lower your monthly payment, allowing you to qualify for more purchasing power. The details have not been announced yet regarding repayment terms, or the requirements for the eligibility. The program is set to roll out September 1, 2019.
These programs are the governments attempt to assuage the thousands of first time home buyers who are being negatively affected by the #mortgage stress test qualifications imposed back in January 2018. These programs, in my opinion, are not going to have the desired result of creating #affordability. The shared equity program has too many variables unknown at this point to make a decision if it’s truly going to be positive. There have been programs in the past that were rolled out through provincial and municipal governments…the shared equity portion in some cases ended up hurting the homeowners down the road financially. We’ll have to wait until the details are announced to truly know.
As for the increased RRSP withdrawal…great for first time homebuyers who have this much savings! There hasn't been an increase in 10 years, so it's definitely overdue. Although, this is not even an option for the average first time homebuyer, that’s for certain. Not to mention, using today's rates, the increased down payment of $10,000 reduces your monthly payment by $50/month. However, the INCREASE to the annual repayment of the #RRSP equates to $55/month. So what have you gained? A net loss of $5/month to your cash flow. Minimal, I know, so it's not really a negative but is it worth celebrating either?
On the plus side, rates have continued to drop over the last few weeks and are positioned to stay low for the foreseeable future…surprisingly enough, the qualifying rate set by the government has NOT dropped (Sarcasm alert), although we can always hope.