For those dreaming of buying their first home, the 2019 federal budget did not go unnoticed. As property prices skyrocket in Canada, in Montreal and especially in the Toronto and Vancouver areas, here are three new incentives implemented by the Canadian government to help you afford property more easily.
Young adults and families often get discouraged by how much money is required to buy a house and make monthly mortgage payments.
The federal incentive for first-time home buyers can help reduce monthly mortgage carrying costs. The incentive amounts to 5% of the property's value for an existing home and 5% or 10% for a new home. The incentive is an interest-free loan. It must be reimbursed when the property is sold or within 25 years of purchase. The amount repaid will be based on the value of the property at that time.
“This measure has two goals: to make it easier for first-time buyers to access property and to encourage developers to build more homes and condominiums in Canada, ensuring that this new financing option does not create a scarcity effect that causes prices to rise,” explains Louis-François Ethier, Product Manager, Mortgage Credit Solutions at National Bank.
A clear example
A couple wants to buy a new condo for $400,000. They saved $20,000 for a 5% down payment and receive a $40,000 incentive (10% of the condo's value). Their mortgage therefore equals $340,000, to be paid in monthly installments of $1,745. Without this incentive, they would have paid $1,973, or an extra $228 per month. When they decide to repay the incentive, the couple will have to pay 10% of the condo's market value.
Louis-François Ethier is confident that the effects on the market will be almost immediate.
“This measure was first created for cities like Toronto and Vancouver, where condos often cost around $600,000 or $700,000. This makes it difficult for first-time buyers to break into the market." he explains. “But it's definitely going to help first-time buyers in Montreal as well, even if prices are more affordable here.”
To learn more about the eligibility criteria and how to benefit from this incentive, consult our article on the subject.
Thanks to the Home Buyers’ Plan (HBP), a first-time Canadian homebuyer can withdraw money from their Registered Retirement Savings Plan (RRSP) for a down payment. The 2019 federal budget increased the withdrawal limit from $25,000 to $35,000. For a couple, that means a total of $70,000 can be withdrawn from their RRSPs and used as a down payment to purchase property. Those who use the HBP always have 15 years to repay the amount withdrawn from their RRSP. Repayment must begin the second year following the withdrawal.
“There are so many first-time buyers who can benefit from the HBP, which is why it’s so popular,” says Ethier.
However, can first-time buyers really save $35,000 in their RRSP to use for their down payment? “This is something we have asked ourselves,” admits Ethier. “Saving $25,000 in an RRSP is already a feat for a first-time buyer. Many of them have just gotten out of school and have student loans to repay. We’ll have to wait and see.”
While the HBP is aimed at first-time buyers, the program is also available to people who have not resided for over four years in a home that they or their ex-partner owned.
As of January 2020, people who are divorced or separated will also be able to benefit from the HBP even if they do not meet the requirement of being a first-time buyer.
The HBP can be used for a second time—if the RRSP withdrawal has been fully repaid—by people who are separated or divorced and decide to buy new property or buy back their ex-partner’s share.
“I’m convinced that this will really help anyone who is separated to purchase property again soon. That’s because RRSPs, where you can grow your money is tax-free, are the savings tool of choice for many people,” says Ethier.
With the new and improved HBP that can now be used by people who are
separated, along with the CHMC’s interest-free loan for first-time
buyers, this is the perfect time to think about buying a first home.
And if you’re really serious about it, follow our guide
to buying your first home.
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