As part of the federal government’s plan to make housing more affordable for millennials, Canada Mortgage and Housing Corp. (CMHC) will spend up to $1.25 billion over three years to take equity positions in homes bought by first-time buyers.
CMHC will provide up to 10% funding for new homes and 5% for existing homes to reduce mortgage costs for low- to middle-income buyers, according to federal budget documents released on Tuesday in Ottawa. The financing would apply to insured mortgages, which are required if the buyer puts less than a 20% down payment on the property.
The new program, called the “First-Time Home Buyer Incentive,” will be launched in September and be available to first-time buyers with an annual household income of up to $120,000. The amount of the insured mortgage would be capped at four times that income ($480,000).
Someone buying a new $400,000 home with a 5% down payment ($20,000) may qualify for a 10% ($40,000) contribution from CMHC. That would reduce the monthly payment from $1,973 to $1,745, assuming a 25-year amortization and a mortgage rate of 3.5%, according to an example in the budget documents.
While the budget made no changes to mortgage stress tests or amortization terms (changes that industry groups had called for), it did provide other forms of housing relief. The limit on tax-free withdrawals from registered retirement savings plans for first-time buyers will increase from $25,000 to $35,000, the first change to the limit in a decade, according to a Bloomberg report.