New federal Home Buyers Plan aims to help all Canadians with home ownership

By Geoff Kirbyson

The federal government is doing everything it can to get as many Canadians as possible into home ownership.

Well, almost everything.

Short of paying your mortgage, a number of new initiatives from Ottawa recently kicked in to help more people move out of rental properties and into their own homes.

Jeff Sparrow, managing partner of Castle Mortgage Group in Winnipeg, is most excited about the first-time homebuyer incentive. This $1.25 billion initiative over three years will enable first-time homebuyers to apply to finance a portion of their home through a shared equity mortgage with the federal government.

If you’re buying an existing home, it will match your five per cent downpayment with an interest-free loan that’s registered on the title of the house.

If you’re buying a new home or condo, you can apply to add another five per cent on top of that, so you’ll end up with a total downpayment of 15 per cent.

There are a couple of important stipulations. First, you can’t have a household income greater than $120,000 and the house on your radar can’t be more than four times your annual income.

You have a maximum of 25 years to pay back the loans but there’s no penalty for paying them off early. If you sell the home, the federal government is the second creditor, right after the mortgage provider.

The math always works out in your favour as a first-time homebuyer, Sparrow says.

“If you put five per cent down, the insurance premium I would have to pay to the three mortgage insurance companies (Canada Mortgage & Housing Corp., Genworth Canada or Canada Guarantee Mortgage Insurance) is four per cent,” he said.

“But if I put five per cent down and the government matches it, the premium drops to 3.1 per cent, so I save almost a full percentage point on the insurance premium.”

So, on the purchase of a $300,000 home, you’d save more than $3,000 on the mortgage default insurance premium and over the next five years, you’d save $5,800 in payments.

“At the end of the five years, you’re well over $8,000 to the good compared to not doing the program. I’m going to take advantage of the program because it’s an interest-free loan,” he said.

If your house increases in value and you sell it, Ottawa gets its original investment back plus five per cent of the gain in value. So, if your house goes up in value by $50,000, you’ll have to fork over an extra $2,500.

On the flipside, in the unlikely event that you sell your house for less than you bought it, the federal government would recoup five per cent less on their original outlay.

There are also two fundamental changes that have been made to the Home Buyers’ Plan. This program, which has long allowed first-time homebuyers to use their RRSP savings as a tax-free downpayment, has increased the limit from $25,000 to $35,000.

And in the event of a marital split, the new rules stipulate that both partners can use their RRSP savings as a downpayment even if they’re buying their second or third home.

Winnipeg is one of markets where the first-time homebuyer incentive is expected to be popular because of the relatively low housing prices. In cities such as Toronto and Vancouver, however, you can’t buy nearly as much house for $480,000.

“This is the first time the federal government has made changes to the mortgage programs in Canada that have positively affected the prairie regions because of our house values,” he said.